Date: 29 Jan 2018

Ripples from Mnuchin Comments May Linger in USDJPY

For all the attempts to contextualise, or perhaps more accurately marginalise, US Treasury Secretary Steven Mnuchin’s comments last week in Davos which helped to create the impression that the US Treasury’s present incumbent was less wedded to the notion of a strong dollar policy than his predecessors, the currency market may not easily be thrown off the scent. Dollar/yen might be one currency pair upon which attention alights. Data released on Friday by the US’ Commodity Futures Trading Commission, for the week to January 23, showed a net speculative short yen/ long dollar position of 122,870 contracts up from the previous week’s print of 119,350. With each contract worth 12.5 million yen, that equates to a net short yen position equivalent to USD13.9 billion.

Given the price action in dollar/yen between Jan 23 and the end of the week, with the pair heading lower, anyone who was short yen at the close of business last Tuesday and who still had the same position at the close of the week, likely didn’t enjoy the move. As the new trading week begins, if traders perceive that there remains a substantial, and essentially out-of-the-money, structural short yen position in the market, dollar bears (possibly with Mnuchin’s comments at the back of their minds) might be inclined to see how much conviction remains in that short yen stance.  Traders will need no reminding that the 2017 low in USDJPY was 107.32.

Written by Neal Kimberley, External Currency Analyst.