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3 Sep 2015
EUR and JPY well supported by current market situations - Rabobank
FXStreet (Delhi) – Jane Foley, Senior Currency Strategist at Rabobank, notes that the current risk aversion environment has resulted in unwinding of carry trades, thereby lending support to EUR and JPY.
Key Quotes
“ECB President Draghi will have the opportunity to outline the thinking of the Governing Council at this afternoon’s press conference. Weak commodity prices mean that a downside revision of inflation projections is widely expected. That said, beyond the use of dovish language we do not expect any tangible policy response from the ECB today.”
“Speculation that the Bank of Japan could announce another increase in its QQE plan has been kept alive all year by weak inflation and slow growth. This is despite the upbeat outlook of inflation from BoJ Governor Kuroda. Overall, we concur with the IMF that a reduction in growth stemming from China and other emerging markets means that a step up in QQE from the BoJ has become more likely.”
“Investors’ current aversion to risk has meant that carry trades have been unwound and JPY and the EUR (widely used as funding currencies) have subsequently found support. Even if policy responses from the BoJ and ECB are stepped up, these currencies are likely to remain firm against a wide range of EM currencies in the coming months. That said, we see scope for the EUR and the JPY to give back some ground to the USD and the GBP in the coming months.”
Key Quotes
“ECB President Draghi will have the opportunity to outline the thinking of the Governing Council at this afternoon’s press conference. Weak commodity prices mean that a downside revision of inflation projections is widely expected. That said, beyond the use of dovish language we do not expect any tangible policy response from the ECB today.”
“Speculation that the Bank of Japan could announce another increase in its QQE plan has been kept alive all year by weak inflation and slow growth. This is despite the upbeat outlook of inflation from BoJ Governor Kuroda. Overall, we concur with the IMF that a reduction in growth stemming from China and other emerging markets means that a step up in QQE from the BoJ has become more likely.”
“Investors’ current aversion to risk has meant that carry trades have been unwound and JPY and the EUR (widely used as funding currencies) have subsequently found support. Even if policy responses from the BoJ and ECB are stepped up, these currencies are likely to remain firm against a wide range of EM currencies in the coming months. That said, we see scope for the EUR and the JPY to give back some ground to the USD and the GBP in the coming months.”