We expect yen crosses to trade in narrow ranges: RBC Capital Markets

The natural supply and demand condition of the forex market still calls for the Japanese yen to strengthen, said Adam Cole, global head of FX strategy at RBC Capital Markets. Exports, repatriation, and speculation are factors that drive up its value.

However, the upside to the yen is limited by G7’s surprise coordinated intervention to weaken the yen.

Given these two opposing forces, both upside and downside is limited, so USD/JPY and other yen crosses are likely to trade in narrow ranges, said Cole and his team.

They think the goal of the G7 intervention isn’t to engineer a long-term weakness in the yen; rather, it’s to counteract the rally that resulted from Japan’s tragic earthquake.

Before the disaster, USD/JPY traded in the 82-83 range and EUR/JPY traded in the 112-115 range, so it may be reasonable to assume those ranges are where the yen will stay for the near-term.

Moreover, the previous high in USD/JPY was 83.29 right before the earthquake on March 11. Before that, the high was 83.96 on February 16. Therefore, it may be reasonably to assume that either of those figures represent an upper-bound for USD/JPY.

Email Hao Li at hao.li@ibtimes.com

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