The last stage of the dollar’s rally is no fun for chess players. This is the time when the poker players thrive, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

Constant diet of rising US yields needed to drive USD/JPY higher and higher

“The dollar is supported a strong economy hawkish central bank, and favourable terms of trade. But the market is short treasuries, long dollars.”

“The yen’s bounce suggests that the market needs a constant diet of rising US yields to drive USD/JPY higher and higher. The China-sensitive currency universe though, seems vulnerable until the Chinese economic outlook changes.” 

“The European data are holding up better than they might thanks to energy support, but not well, and anyway, the tail risk confuses things. Spot European natural gas prices suggest storage tanks are full, three-month ahead prices suggest that if cold weather created a bit of space, the spot price would bounce.”

“We’re closer to peak US yields and peak dollar, but if you want to know how to time the turn with confidence, you need to understand market psychology. All I know is that the last stage of the dollar market will see more big moves than direction.”