Yen Vulnerable to Deeper Losses as Market Mood Improves

TALKING POINTS – YEN, NZ & US DOLLARS, IFO, STOCKS

• Yen may extend decline as market-wide risk appetite improves
• Kiwi Dollar down as RBNZ rate hike expectations deteriorate
• Euro may not find strong motivation in German IFO statistics

The anti-risk Yen suffered as risk appetite swelled in Asia Pacific trade, with bourses in Japan, Australia and China posting confident gains. The New Zealand Dollar underperformed however, sinking alongside local bond yields. The move speaks to ebbing RBNZ rate hike prospects but a clear-cut catalyst for the shift in baseline policy bets is not readily apparent. Tightening is not priced in until mid-2019.

Looking ahead, a tame European data docket seems unlikely to provide directional conviction. Germany’s IFO survey is perhaps the most eye-catching bit. The headline business confidence gauge is seen falling for the fifth consecutive month, underscoring some of reasoning behind the recent dovish shift in ECB policy bets. Euro follow-through ahead of the coming Governing Council meeting however.

The US calendar is even sparser, which may leave sentiment trends to dictate the near-term trajectory. S&P 500 futures are pointing convincingly higher ahead of the opening bell on Wall Street, hinting that a “risk-on” mood may prevail. That bodes most obviously ill for the Japanese unit. Meanwhile, the US Dollar may continue to march higher, if for reason better than the absence of a substantive road-block.

See our quarterly FX market forecast s to learn what will drive prices through mid-year!

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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