Date: 27 Mar 2018

Tentative signs that Beijing and Washington are keener on trade negotiations than trade confrontation, coupled with a degree of optimism from the US side on the prospect of successfully securing an amended NAFTA deal, have fed a climate of risk appetite in Asia that has spilled over into the European session. The yen has consequently given back some of its recent gains versus the US dollar (USDJPY) while the euro has caught a bid versus the greenback (EURUSD), the combination of those two developments having propelled EURJPY higher in the process. But what might traders expect for today? In the first instance , as regards USDJPY, traders might wish to bear in mind that while the pair has ascended back onto a 105 handle, it is nevertheless potentially sandwiched on the day by very sizeable expiry interests. IFR reported overnight the existence of USD1.7 billion of xxx at 105.00, in excess of USD1.8 billion in the 105.25-55 range and an additional USD400 million at 106.00.

As for EURUSD, what may strike traders as particularly intriguing is that the euro has gained ground even as the Eurozone/US yield differential has widened further in the US’ favour. Given that the market is having to pay for the privilege of running long EURUSD that could suggest demand for the single currency is real and not just speculative. Traders will have their own views on this, just as they will have their own opinions on how likely it is that the market as a whole will wish to run long of euros at the top end of the recent range through the long weekend, but it’s undeniable that, as Japan’s MUFG noted on Tuesday, the euro is exhibiting a degree of tenacity, having ground out a small rise versus the US dollar last week (in a circumstance of broad risk aversion) while being a prime beneficiary today of a return of risk appetite.

Written by Neal Kimberley, External Currency Analyst.