We still prefer dollar, longs against the yen to longs vs. the Euro.
EUR/USD looks like drifting down to 1.08 or so, but we’re still worried about
how much Euro softness depends on the ECB crowding private sector
investors out of European bonds and the Euro. We’ve written about how
tapering of bond purchases could trigger a Euro bounce, but more
broadly, a weaker currency was one of the major channels by which ECB
policy has worked but if the Euro is now just range-trading and the ECB
has virtually run out of ammunition, then we struggle to see a catalyst
for another significantly lower.
By contrast, there are still lots of yen longs out there to squeeze as
US rate expectations rise and B OJ policy is well-designed to help
yield differentials widen in the favour of the dollar as long as the
upward crawl in treasury yields goes on. The only concern is risk
sentiment more broadly – I couldn’t make a credible case for Yen
softness on a trump win..
SocGen maintains a long USD/JPY from 100.30.