Archived IMT (2009.09.23)

FX markets require a jittery equity market in order to scale back dollar shorts. As long as the FOMC statement expresses continued and gradual improvement in the economy (as it did over the last 2 statements) but without announcing the intention to withdraw liquidity, then there would be little reason to support the dollar. Such a scenario would tend to be yen-negative but not to the same extent of dollar weakness. Thus, USDJPY risks falling below 90 in the event of renewed risk appetite and especially in the unlikely event the Fed extends some type of liquidity (MBS, treasuries or reverse repos). The lose-lose situation for USDJPY remains and the only exception would be for a retreat in equities (as was seen earlier this week).