UBS - "USDJPY remains the focus of the currency markets. Over the last two weeks the flush out of positions in the currency pair and the Nikkei has been savage, causing investors to unwind other dollar longs against the euro, pound and Swiss franc. In contrast, the fundamentals supporting a stronger dollar this year remain intact.
(...) most of the forty clients we met this week in France, Sweden and Switzerland also still favour the dollar this year. Longs have clearly been strongly reduced. But there has been no outright capitulation in sentiment on the greenback. A further decline in USDJPY and the Nikkei below the levels they were trading at the time of the Bank of Japan's historic easing announcement on April 4 - 92.91 and 12173 respectively - would induce that.
This week's key points for currencies are:
- Bernanke may be dovish but FOMC still set to taper
- euro drifting higher for now
- USDJPY still faces risks in very near term
- MPC minutes key for sterling in the week ahead
- no changes from SNB meeting but EURCHF set to rise
- keep favouring AUDNZD lower despite unchanged RBNZ"