30 Jul 2013
Flash: Inclined to hold long USD/JPY into FOMC - Nomura
FXstreet.com (Barcelona) - On the near-term event risk, ahead of the FOMC, the Fed has been successful on turning divorcing initial hawkish expectations into a dovish direction, notes FX Strtegist at Nomura, Jens Nordvig.
Key Quotes
"Given market pricing currently (where short-end rates have dropped and financial conditions have eased), it is not clear that there is agreement within the FOMC on a lowering of the unemployment rate threshold for rate hikes. However, the introduction of an inflation floor, alongside the existing 6.5% unemployment rate barrier, seems possible, and could help contain short rates."
"At the same time, the FOMC may want to highlight the cumulative improvement in the labor market since September 2012, to stress that the need for QE has been substantially reduced already (even if the growth momentum currently is not strong)."
"Overall, this would not be a substantially dovish outcome relative to current consensus, although the possible addition of a downside floor for inflation within the forward guidance for rates may vindicate recent short-end moves."
"All told, given the balance of risk in terms of changes to the statement, we are inclined to hold on to long USDJPY structures (in covered call form) into the event."
Key Quotes
"Given market pricing currently (where short-end rates have dropped and financial conditions have eased), it is not clear that there is agreement within the FOMC on a lowering of the unemployment rate threshold for rate hikes. However, the introduction of an inflation floor, alongside the existing 6.5% unemployment rate barrier, seems possible, and could help contain short rates."
"At the same time, the FOMC may want to highlight the cumulative improvement in the labor market since September 2012, to stress that the need for QE has been substantially reduced already (even if the growth momentum currently is not strong)."
"Overall, this would not be a substantially dovish outcome relative to current consensus, although the possible addition of a downside floor for inflation within the forward guidance for rates may vindicate recent short-end moves."
"All told, given the balance of risk in terms of changes to the statement, we are inclined to hold on to long USDJPY structures (in covered call form) into the event."