Tuesday, July 19, 2011

Merrill Lynch: USD/JPY will test the record minimum

Currency strategists at Bank of America-Merrill Lynch think that the greenback won’t drop below the record minimum versus yen at 76.25 hit on March 17 after Japan was shaken by the severe earthquake.

Never the less, the concerns about the debt problems both in the euro area and the United States are likely to keep strengthening risk aversion. As a result, the specialists warn that the slide of the pair USD/JPY may turn out to be surprisingly big.

The net short position on Japanese yen that is currently aggregated by the FX margin trade is very large, so the sharp risk aversion may trigger stops provoking unwanted liquidations of investors’ short yen positions making Japanese currency surge.

According to BoA-Merrill Lynch, if the pair tests all-time minimum, the Bank of Japan would have to ease policy further, while the nation’s Ministry of finance would probably intervene to stop disorderly appreciation of the national currency.

daily usdjpy 13-17
 
Chart. Daily USD/JPY

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