USD/JPY: Buy Dips; GBP/USD: Time To Sell – BofAML

Bank of America Merrill Lynch FX Strategy Research expects the BoJ to keep the current policy framework well into 2018, and just wait for policy normalization by the Fed and other central banks.

“After a round of sluggish data, failure to pass the healthcare bill, and not-so-hawkish Yellen comments, it may take some time before the USD reclaims its upward trend. At the same time, low volatility, high equity price, and policy divergence keep JPY from appreciating, though politics pose some risk.

We think USD/JPY will eventually rise beyond 115 into the autumn, and we would buy the pair’s dip, but also remain concerned about downside short-term risks from a risk-off correction in global markets,” BofAML argues. 

Turning to GBP, BofAML sees bearish GBP risks mounting and thinks current levels could offer good short exposure.

“The second round of Brexit negotiations this week show no progress. Press reports suggest that the EU is not including the UK rebates in its calculation of UK budget contributions post-Brexit, which we believe would be a non-started for the UK. In the meantime, the polyphony in the UK government on the Brexit strategy and goals, and high uncertainty about the governments sustainability in its current form continue,” BofAML adds.

Source: Bank of America Merrill Lynch Rates and Currencies Research

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