Dollar Yen and the Crosses have pulled back sharply over the past week or so easing back to the prior month long consolidation zone. Across the three pairs we have seen prices already coming off the 50D Moving Average though absent any compelling reason for a rally we do not expect to see a test of multi decade highs any time soon. For now we look at the pairs as a carry trade, i.e. buying the base currency for gains from the swap.
USDJPY
Despite recent weakness in US economic data, the US economy is still doing a lot better than Japan’s and the Fed’s policy is focused on containing inflation. As such the pair is still our ideal carry trade combining the potential for currency gains with a decent swap.
GBPJPY
Cable provides the biggest potential for any carry trade in terms of swap points though the upside for currency gains may be limited. Note that the UK’s BoE is largely seen as the likeliest to cut rates first among the major central banks with the next meeting set on Thursday, May 9 2024.
EURJPY
With the smaller swap points EURJPY for us has the smallest potential for total upside in terms of total gains in a carry trade. Note too that the ECB is a candidate for being the first to ease with Eurozone CPI just above target and ECB President Christine Lagarde signalling in April that they will not wait for inflation to drop below target.
