USD/JPY faces a potential correction lower near term – Danske Bank

The Japanese Yen is expected to regain some traction in the next periods, putting the pair under some downside pressure, argued Christin Tuxen, Senior Analyst at Danske Bank.

Key Quotes

“USD/JPY broke above 113 yesterday for the first time since 14 July, driven by momentum in USD”.

“While underlying fundamentals continue to support the cross and progress in a US tax reform would be positive for the cross, we note that a December hike from the Fed now is priced with a 70% probability”.

“Moreover, PM Shinzo Abe is expected to dissolve the Lower House today and call for a snap election and while polls indicate that he is most likely to maintain his majority, uncertainty could potentially induce JPY appreciation pressure”.

“Hence, we expect the rally in USD/JPY to lose momentum as correction risks are building and we see value in buying a 1M USD/JPY put spread to position for a possible dip in the spot and spike in volatility”.