Why is Yen weakening sharply?...from Tush312

25 Mar 2022, 15:08 · Views 1,117

Japan is a net importer of commodities. Commodity prices are soaring due to supply disruptions created by Russia-Ukraine war. Most of this commodities are priced in dollars. As the value of this exports go up more yen gets sold for dollars to facilitate trade.
Central bank policy divergence is also play a key role. Fed has started it’s hiking cycle while Japan holds its rate at negative territory. Chairman Powell became more hawkish by acknowledging he is ready to raise rates by 50 basis points
Central bank policy divergence and higher commodities prices are behind the Yen weakness

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The rally in the EURUSD will peak in the short term. Currencies have a positive correlation with expected future interest rates. Bonds yields on the short end of the curve are primarily driven by interest rates expectations which means that short-term bond yields embed expected future interest rates. Currency pairs represent two nations so it’s imperative to compare two nations bonds yields. Interest rate differential Interest rates differential which acts as a leading indicator for exchange rate movement signal that the rally on the EURUSD is close to a pause. g Positioning Bullish Speculative bets on leveraged funds are approaching all times high of 2021. As leveraged funds takes profits on those positions Euro will experience a downward pressure. Price actions EURUSD has been on the sideways channel for the better part of the week a significant drop below 1.1195 will be a good signal to enter a short position targeting 1.1.

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