FX Update: Commodities and yields driving FX moves.

The JPY was briefly jolted stronger overnight on remarks in the Asian session from Bank of Japan governor Kuroda, who answered questions before parliament overnight. He noted that that the “moves in foreign exchange seem somewhat rapid.”. This is seen as evidence that the Bank of Japan does not like the pace of recent JPY depreciation, even if the BoJ itself has commented in the recent past that a weak JPY still benefits the Japanese economy. The USDJPY exchange rate will remain sensitive to US treasury yields as was once again in evidence today on the rebound from overnight lows. That is, until or unless the BoJ or Japanese Ministry of Finance mount a more considerable campaign than throwaway verbal comments. The critical cycle high in USDSJPY is just above 125.00, still a couple of figures above today’s price action even if the US 10-year is within reach of the highest daily close of the cycle (that was 2.47% last Monday, a level that has traded today, with the highest intraday level at 2.55%).

Fed watching today and tomorrow. The Friday jobs report from the March provides plenty of further ammunition for the Fed to get busy and send out fresh hawkish signals. The official nonfarm payrolls change was a shade below expectations, but we have come to expect a steady stream of upward revisions and got a +95k boost to the prior two months’ data on Friday. More importantly, the household survey was very strong as the unemployment rate plunged another 0.2% to 3.6% despite the participation rate increasing another 0.1%, taking it just a few tenths of a percent away from the pre-pandemic range. Average Hourly Earnings rose 0.4% month-on-month. The next chance for the Fed to buy some more credibility is at a virtual event hosted by the Minneapolis Fed later today, at which Fed Vice Chair Lael Brainard will speak on inflation driving inequality. The event will feature a Q&A session. As we debated once again on today’s Saxo Market Call podcast, while some measures of financial conditions are tightening (esp. yields), others have collapsed in recent weeks (credit spreads and risky asset volatility).

The Swiss franc is firm on the ECB scotching rate expectations last week, but also on geopolitical impacts from Russia-Ukraine. The weekly sight deposit data from the SNB jumped aggressively by some CHF 6 billion last week, the largest intervention since 2020.

Table: FX Board of G10 and CNH trend evolution and strength.
The JPY comeback of last week has so far merely proved a shallow consolidation – note the euro losing further altitude in the wake of the dovish ECB comments last week, while. AUD is the king of the hill, while CAD is trying to make its presence felt with as the lows for the year below 1.2450 in USDCAD come into view. Note Gold biding its time with a complete lack of trending behaviour, caught between the tailwind of higher inflation with the headwinds of higher yields and strong risk sentiment.

Table: FX Board Trend Scoreboard for individual pairs.
Commodity trends are stronger in many, but not all pairs, as oil is winding within the range, while AUD is shining as it can ride many different commodity horses. The odd AUDNZD reversal of last week has been wiped away and then some, with that pair re-confirming the up-trend. Watching EURCHF as the last Fibo retracements for the recent rally come into view – 1.0136 for the 61.8% retracement.

Upcoming Economic Calendar Highlights (all times GMT)

• 1230 – US Feb. Trade Balance
• 1230 – Canada Feb. International Merchandise Trade
• 1400 – US Mar. ISM Services
• 1405 – US Fed Vice Chair Brainard to speak
• 1630 – US Fed’s Daly (non-voter) to speak
• 1800 – US Fed’s Williams (voter) to speak
• 0145 – China Mar. Caixin Services Index