Emerging-market currencies had their worst selloff in five years yesterday. The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 2.75% as we seem to be experiencing a “global flight to quality.”
We believe the market is susceptible to a slight correction of literally around 1%. We have a downside target of 1774 from the current level of around 1790. This move could happen tomorrow if the data prompts a the market to think the Fed may taper sooner rather than later.
The BOJ releases their policy announcement tomorrow, and the market is expecting no new stimulus from the BOJ, which is perhaps why the Yen is rallying. The Pound is also rallying on more specific policy guidance from Carney and the BOE.
The U.S. dollar has been the currency haven of choice when the world goes through a convulsion of fear. But the dynamics of the forex market could be about to shift or at least go through a period of confusion.