There is a growing talk about the flattening of the yield curve and a potential inversion. Is a recession coming? How can it be played in the foreign exchange market?
Here is their view, courtesy of eFXdata:
Credit Agricole CIB Research discusses USD/JPY outlook, and thinks that a continuation of the UST curve flattening this week would add downside pressure on USD/JPY in the near-term/
“JPY has lagged behind EUR and especially GBP as they bounced against USD in recent days. The above may suggest that USD may be particularly vulnerable vs JPY if the UST yield curve flattens further in coming days.
In addition, we suspect that the political storm that has battered the Abe administration recently could continue to cast a shadow of doubt over the longevity of Abenomics (and BoJ’s QE) and trigger further JGB curve steepening, supporting JPY.
Moreover, we doubt that any downside surprises from the upcoming Japanese CPI data on Friday would significantly affect market’s view on the BoJ policy outlook,†CACIB argues.
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