JPY and CHF: Guided by the risk appetite - Rabobank

Jane Foley, Senior FX Strategist at Rabobank, points out that around the open of the European session, the CHF was the worst performing G10 currency on a 1 day view while the JPY was positioned in the middle of the pack. 

Key Quotes

“Both have climbed up the ranks in the past few hours, though the CHF remains relatively soft.  The implication is the risk appetite is holding its ground.”

“If a paring back of the risk of trade wars is good news for market sentiment, this week’s warnings by Russia to the US of grave repercussions are the opposite. The warnings refer to a possible US led attack against Syrian government forces following reports of their use deadly chemical weapons a few days ago.  Ordinarily the safe haven JPY and CHF would be expected to strengthen in reaction to a risk in geopolitical worries, though this year the JPY has exhibited greater safe haven sensitivities.”

“The rise in the value of JPY/CHF since the start of February is likely partly a function of the threat of FX intervention from the SNB.  It also likely reflects the market’s conviction that the SNB could be the last G10 central bank to start backing out of its hugely accommodative monetary policies. By contrast, there has been plenty of market speculation this year suggesting that the BoJ could be starting to consider an eventual withdrawal of monetary stimulus.  It is our view that the BoJ has little intention of reversing course on policy and the impact on the inflation outlook from the tighter monetary conditions that have resulted from this year’s firmer JPY support this view.  That said, we still expect the JPY to be the better safe haven in the coming months.”

“Although the JPY has been slow to react to the news regarding the worsening of the relationship between the US and Russia over Syria this week, an increase in tensions does have the capacity to push USD/JPY lower. Support is offered by the conversion line at 106.57 on the daily Ichimoku chart, with the base line coming in at 106.02.  It is our central view that USD/JPY will be holding in the 107.00 area on a 3 mth view.”