Market Analysis by covering: US Dollar Japanese Yen. Read 's Market Analysis on Investing.com ...

Group 1: Japan's Economic Context - The yen has strengthened since the election, currently trading at 153, indicating a shift in market sentiment [1] - There is a narrative suggesting a turning point for Japan's economy, with a pro-growth outlook and certainty in policy implementation, leading to a belief that the yen is undervalued [2] - Despite the positive sentiment, fundamental bearish reasons for the yen remain, including slow economic growth and a large debt burden with negative real yields [4] Group 2: Dollar Dynamics - The dollar's reaction to strong payroll numbers was less pronounced than expected, indicating a complex relationship between economic data and currency movements [6] - The market is structurally overexposed to the dollar, which is expected to trend downwards over the coming years, with opportunities to offload during spikes [7] - Weak economic data could justify rate cuts, further weakening the dollar, while strong data may not provide relief due to poor monetary policy [8] Group 3: Market Sentiment and Equity Outlook - There is a sense of anxiety in the market, particularly regarding potential shocks in equity due to ongoing portfolio damage and wealth concerns [10] - The impact of AI on job recovery is viewed as slower than some predictions, suggesting a longer timeline for significant changes in the job market [11]

Group 1 - The core viewpoint of the article is that the Chinese yuan has returned to an appreciation trend, with the USD/CNY midpoint reaching a new low since May 2023 at 6.9523, approaching the critical level of 6.95 [1][10]. - The appreciation of the yuan began to accelerate in December last year, with a monthly increase of approximately 900 pips, followed by an additional 500 pips in January [2]. - The yuan's appreciation characteristics can be summarized as "self-driven," where the yuan gains momentum when the US dollar index declines, and experiences limited adjustments when the index rises [4][6]. Group 2 - The USD/CNY midpoint has been on a downward trend for eight consecutive months since the peak of the trade war in April last year, returning to a trajectory that aligns with market appreciation rates [5]. - There is a consensus among enterprises to adjust their currency exchange strategies flexibly, moving away from fixed points to follow market trends [7]. - Potential risks before and after the Spring Festival include supply-demand imbalances due to pre-holiday settlement pressures, with the possibility of the USD/CNY rate dropping to the 6.9 level [8]. Group 3 - Key data releases, including January's non-farm payrolls and CPI, could catalyze market movements, especially with the upcoming long Spring Festival holiday, which may increase volatility [8]. - The article notes that the longest Spring Festival holiday in history, lasting nine days, could yield a carry return of 50 pips, leading to speculative trading that may amplify market fluctuations [8][10]. - The article concludes that the appreciation of the yuan may not be over before the Spring Festival, and that adjusting exchange rates at higher levels is a reasonable strategy [10].

Potential explanation for this week’s selloffDean Eigenmann (@DeanEigenmann):was sent a pretty in-depth report on what's driving the crypto unwind. the short version: a large non-crypto entity likely based in HK was running JPY carry trade funding into leveraged IBIT options + Binance positions + precious metals. Oct 10 blew a hole in the balance sheet ...

The Hong Kong dollar drifted down to near the weakest level since August as excess cash in the banking system spurred carry trade bets against the pegged currency https://t.co/opXr8hCaXW ...

Carry-trade investors are starting to pile into the Argentine peso now that Javier Milei has secured a strong mandate to press ahead with his free-market policies https://t.co/xH74YsYfz8 ...

Core Insights - An inverted yield curve has historically signaled impending recessions, but the recent inversion in 2023 did not lead to a recession, marking a rare false signal in 50 years [3] - A steeper yield curve typically indicates positive economic growth expectations and lower inflation risk, but recent developments in Japan suggest that rising long-term yields may be driven by inflation concerns rather than economic improvement [4][5] Yield Curve Basics - The yield curve measures bond yields across various terms, usually exhibiting a positive slope where longer-term yields are higher than short-term yields, reflecting a term premium for locking money away longer [2] - An inverted yield curve occurs when short-term yields exceed long-term yields, often influenced by central bank policies and economic expectations [2] Recent Trends - The U.S. yield curve has transitioned from inversion in 2023 to a flat and then positively sloped curve expected in 2025, indicating falling inflation risk and improving economic growth prospects [4] - Japan's yield curve has steepened due to rising long-term yields, which are not justified by economic fundamentals but rather by inflation and debt sustainability concerns, with Japan's gross debt at approximately 230% of GDP [4][5] Investment Implications - Rising yields in Japan may increase borrowing costs for carry trades, potentially leading to unwinding positions that could negatively impact global asset prices [5] - If global long-term yields rise due to inflation fears rather than economic growth, bonds may not serve as effective portfolio stabilizers, leading to elevated correlations between equities and bonds [6] Future Considerations - Attention to inflation and debt sustainability risks is expected to increase, which may reduce the defensive role of bonds in portfolios, necessitating alternative strategies such as holding cash or commodities [7] - The need for diversified defense strategies in investment portfolios has become more critical in recent times, as traditional bond investments may not provide the expected stability [7]

Core Viewpoint - The Bank of Japan's recent interest rate hike has not provided a lasting boost to the yen, leading to increased skepticism about the currency's structural weaknesses and the outlook for its recovery [1]. Group 1: Yen Forecasts and Market Sentiment - Strategists from JPMorgan Chase & Co. and BNP Paribas SA predict the yen could weaken to 160 per dollar or lower by the end of 2026, influenced by significant US-Japan yield gaps, negative real interest rates, and ongoing capital outflows [2]. - The yen has gained less than 1% against the US dollar this year after four consecutive years of decline, with a brief rise past 140 per dollar in April before losing momentum due to uncertainties surrounding US tariff policies and political risks in Japan [3]. - Junya Tanase, chief Japan FX strategist at JPMorgan, holds a particularly bearish forecast for the yen, predicting it could reach 164 per dollar by the end of 2026, citing weak fundamentals and potential cyclical forces that may further depress the currency [4]. Group 2: Economic Indicators and Market Dynamics - Current market expectations indicate that the next Bank of Japan rate hike is not fully anticipated until September, while inflation remains above the central bank's 2% target, putting additional pressure on Japanese government bonds [5]. - The resurgence of carry trades, where investors borrow low-yielding yen to invest in higher-yielding currencies, is creating additional challenges for the yen's recovery, with leveraged funds showing significant bearish positions on the currency [6]. - Analysts suggest that global macro conditions in the coming year may support risk sentiment, which could benefit carry strategies and keep the dollar-yen exchange rate elevated, with expectations of the dollar-yen rising to 160 by the end of 2026 [7].

From setup to unwindA balanced overview of carry trade mechanicsRead more 👇https://t.co/rHmJ1Prxdd ...

I have been getting a lot of comments on the channel talking about this $100 end of the year price prediction. A lot of you want to know my opinion on this. And I think by the end of this video, you guys might, you know, hate me, you might like me. I have no idea. But regardless of this, I'm going to give you guys my 100% real reaction to all of this. And I'm going to give you guys my opinion on these types of timeframe price predictions. And that's a very important thing to focus on here is the timeframe p ...