Forex Forex Forex

FX Update: Can JPY steal some of the USD’s thunder?

Forex 5 minutes to read
Picture of John Hardy
John Hardy

Head of FX Strategy

Summary:  A deepening funk in equities, combined with a fizzle in bond yields after their recent rise, is seeing the JPY edging out the US dollar as the safe haven of choice as risk deleveraging has continued overnight. This can continue for a time but only as long as longer yields can fall, with or without an ugly further volatility event in risky assets. Interesting data points are up later today and next week from the US.

FX Trading focus: The USD has broken higher – how far can it extend?

As we discussed in today’s Saxo Market Call podcast, equity markets have entered the danger zone in volatility terms in which only binary outcomes seem possible – either a continued and possibly accelerating sell-off or a huge bounce of equal energy to the prior down move – or first the former followed by the latter. In FX, we have seen an odd “tick-tock” in which first it was only the US dollar that was ascendant on the sharp rise in US yields in the wake of the FOMC meeting, followed by a now more vicious and steep rally in the Japanese yen after USDJPY spiked to new highs, as US yields then calmed as risk deleveraging continued. If the risky asset sell-off extends with treasuries sidelined and even rallying, the JPY may edge out the US dollar as a safe haven, but this would likely prove only a short-term development as long as yields are set to rise further down the line, as is our base case.

But really, we need to see the climax of this risk-off event in the rear view mirror before judging market potential here outside of the general idea that anything can happen: and FX volatility, as I also pointed out in the podcast and in recent comments, is still very low – EURUSD has only just now taken back 5.0% for three-month implied,  and three-month USDJPY implied volatility is still below 6.0%.

Interesting data points are up today, though I’m not sure the market is particularly engaged on data right now. These include the US Aug. PCE Inflation indicator, expected to show a slight drop at the core, but already looking stale as this release isn’t very timely and the big price rises of note have been in September. We also get the Sep. ISM Manufacturing after inconsistent regional numbers. The private Markit survey suggests no cause for concern there. The September headline Euro Zone CPI was out today at 3.4% year-on-year vs. 3.3% expected. With natural gas and power prices at multiples of their prior moving averages before winter even settles over the continent, the inflation levels look set to stay elevated or rise even further in coming months. Next gets more interesting with the latest US jobs report and whether workers whose benefits are expiring are rushing to try to fill one of the record number of job openings.

USDJPY has reversed fairly hard here, probably as US treasury yields were the chief driver of the original rally sprint to 111.50+ and the pair looked overextended as long US yields eased back and traded sideway, as the focus shifted to deleveraging in risky assets. A total reversal here is note the base case here and would take more downside – falling back below 110.00 – with a coincident erasure of the recent pop higher in US yields at the long end of the curve. Barring a very ugly volatility event – which we by no means can do – the sights are set higher in the medium term, assuming the Fed is set to continue its path towards policy normalization. Still, it is interesting to note that a number of JPY crosses are sucking wind and poking back toward major support levels after this equity market consolidation – including GBPJPY dipping back near the important 148-50-149.00 area and EURJPY now closer to a major support zone around 128.00.

Source: Saxo Group

Still holding breath for US fiscal signals after House speaker Pelosi failed to bring the infrastructure bill to a vote as she didn’t have the votes to pass it – another attempt could be made as soon as today, but Dems are in an internal battle over the large social- and climate spending bill. Elsewhere, interesting to see  if the debt ceiling issue gets wrangled from Congress – would certainly be a welcome relief from that particularly ridiculous distraction.

CEE central banks vying for credibility as the Czech central bank hiked 75 basis points rather than the 50 expected, taking the policy rate to 1.50% in a bid to get ahead of inflation. EURCZK traded back toward the cycle lows near 25.25, an impressive  performance, given generally weak risk sentiment. EURPLN was also in for a sharp sell-off yesterday on the surprise signal in the Polish Central Bank minutes that showed a 190-basis point hike (to bring the policy rate to 2.0%) was considered but voted down at the most recent meeting. The central bank has looked dovish in sitting on its hands and waiting for the November economic, especially inflation-, projections before making its decision on whether to achieve lift-off, but a signal like this suggests that the move could be quite considerable once a decision is made.

Table: FX Board of G10 and CNH trend evolution and strength
The NZD weakness has likely been aggravated by position squaring in sympathy with general risk deleveraging. An RBNZ meeting next week look set to finally deliver that first 25-bp rate hike, in part after data this week showed that housing prices in NZ advanced an absurd 28% year over year in September. I will leave for readers to interpret the CNH showing the strongest trend reading of any currency on the board. Elsewhere, sterling is trying its utmost to reverse the broad one-off weakening move from Tuesday.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Interesting to note the inconsistent volatility, with many pairs trade with small intraday ranges (ATR column shaded deep blue) while others are elevated (shaded orange – very elevated get a dark orange, with only USDCAD in that category today).

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – Canada Jul. GDP 
  • 1230 – US Aug. PCE Inflation 
  • 1345 – US Sep. Final Markit Manufacturing PMI 
  • 1400 – US Sep. ISM Manufacturing 
  • 1400 – US Sep. Final University of Michigan Sentiment 
  • 1500 – US Fed’s Harker (non-voter) to speak 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.