TD Securities Recommend Short USD/JPY In Wake OF FOMC

TD Securities recommended a short USD/JPY position targeting Y128. The recommendation came when USD/JPY was trading at Y132.00, with a stop set at Y134.30.

• They initiated the recommendation “following the Fed's dovish 25bp hike. The dot plot also left the terminal rate unchanged. Taken together with recent banking stress could make it more difficult to raise terminal estimates. While we think broader market contagion is less likely at this point, tightening lending standards will likely reinforce that terminal pricing and long-end yields will be capped. Moreover, we think that it will take several weeks of data to monitor whether there are knock-on effects to the real economy. We assume that lending standards will tighten further. In the meantime, we reckon that the market will be biased to fade the back-up in bond yields in the long-end of the curve. That should mean that rate differentials imply an asymmetric downside tilt for USD/JPY.”