USDJPY & SNB

Eric Theoret, CFA, CMT FX Strategist at Scotiabank explained that USD/JPY risk is centered on the outlook for relative policy as market participants consider the prospect of a normalizing Fed in contrast to an accommodative BoJ.

Key Quotes:

"We maintain a bias to weakness and look to USD/JPY gains into year end with a Q415 forecast of 125 and a Q416 forecast of 131. USD/JPY faces ongoing vulnerability to turbulence in the broader market tone, however we note that these periods tend to be short-lived and highlight that options prices continue to favor protection against upside risk in USD/JPY."

Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank was speaking in Geneva and reiterated its mantra that the Swiss franc remains overvalued.

“Since the beginning of the financial crisis, Switzerland has been particularly heavily affected by international disturbances. The entire Swiss economy has had to adapt to new international monetary conditions and a significantly overvalued Swiss franc”, Jordan said. “The SNB has geared monetary policy to this new and difficult international situation”.

In the statement, Jordan said that the goal of the SNB has been to steer policy responses in a way that reduces the painful short-term adjustment costs while preserving the stability achieved over the past four decades of independent monetary policy. “The two pillars of its current monetary policy, negative interest rates and foreign exchange interventions as required, serve to reduce the current significant overvaluation of the Swiss franc and to guarantee price stability in the long run”.

He added that due to safe haven status of the Swiss franc the central bank has been active on the foreign exchange market and assured the SNB remains SNB prepared to intervene.