JPY_1_M JPY_1_M JPY_1_M

FX Update: Market set to put next BoJ Governor Ueda’s feet to the fire?

Forex
Picture of John Hardy
John Hardy

Head of FX Strategy

Summary:  The US dollar remains firm, held back slightly yesterday by a modest brightening in sentiment and yields easing a bit lower. Overnight, nomination hearings for Kazuo Ueda, the likely successor to Kuroda at the helm of the Bank of Japan, gave the impression that Ueda will be in no rush to tighten BoJ policy. If yields continue to run higher, the outgoing Kuroda and incoming Ueda are going to have their feet put to the fire by a weakening JPY.


Today's Saxo Market Call podcast
Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: USD remains firm after wobble on yields consolidating yesterday. USDJPY could rip higher as likely incoming BoJ Governor Ueda signaled little urgency to normalize BoJ policy in hearings overnight.

The government nominee to replace Kuroda at the helm of the Bank of Japan, Kazuo Ueda, signaled a very cautious approach to the daunting task of a transition away from the Bank of Japan’s aggressive easing policy of the last 10 years in his three-hour nomination hearings before the Lower House overnight. “If I’m appointed BoJ governor, my mission isn’t to come up with some kind of magical, special monetary policy…As I’ve mentioned before, if you look at the trend in prices, there are improvements we’re seeing, but the situation remains that it’ll take some time until we’ve securely achieved 2% inflation.” This looks quite dovish given the significant backup in yields nearly everywhere else around the world, and also looks like a setup for Mr. Ueda to have his feet held to the fire by a powerful new round of JPY weakening if global yields continue to rise from here. USDJPY is vulnerable to testing the next layers of resistance as discussed below in the USDJPY chart.

Chart: USDJPY
USDJPY is pushing on local resistance here and could be set for a significant advance higher if global yields continue to advance after likely incoming BoJ Governor Ueda failed to signal any urgency on tightening BoJ policy. The first level coming into view is the 200-day moving average just above 137.00 if local highs are taken out, but another solid advance in US treasury yields could quickly set the focus higher on major retracement levels for the sell-off from the 151.95 top to the bottom of the correction at 127.23, like the 61.8% retracement near 142.50.

24_02_2023_JJH_Update_01
Source: Saxo Group

Elsewhere, as discussed in this morning’s Saxo Market Call podcast, we note the general failing of the China recovery narrative, as commodity prices have faltered over the last month, the CNH continues to weaken broadly (not just versus the USD) and the Aussie is serving as a solid proxy on that front. It has rolled over aggressively versus the NZD, sparked this week by the combination of softer than expected AU wage data and a more hawkish than expected NZD, but the critical AUD pair in focus is AUDUSD, which is testing below the 200-day moving average again today. Besides general correlation with risk sentiment for that pair, also watching copper as a coincident indicator, with further broad AUD weakness a risk if the price punches well below $4/lb.

Broadly speaking, the USD is an expression of risk sentiment and the backdrop remains testy, with an overriding concern of escalating tensions between the US and China as Ukraine risks becoming a Cold War-style proxy war, as well as the technical situation in US equity markets, where the recent action has been poised on critical support levels (rising trend-line and 200-day moving average in the case of the S&P 500. The January PCE inflation data is up later today – watch the core month-on-month for directional surprises. Note that next week’s US data does NOT include the jobs data on Friday, which won’t be reported until the following Friday, March 10 (also the day of the next BoJ meeting, Kuroda’s swan song – should prove an interesting day for USDJPY.)

Table: FX Board of G10 and CNH trend evolution and strength.
Note the CNH relative weakness despite USD strength, note the AUD relative weakness. Signals are muted elsewhere, with relative SEK strength largely an artifact of the big move off the back of the Riksbank meeting now more than two weeks ago.

24_02_2023_JJH_Update_02
Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
The 11.00 level in EURSEK seems to be sticky here and SEK outperformance would likely be difficult if global sentiment continues to head south. More AUD pairs tilting into negative trends, including AUDNZD on a close in the low 1.0900’s today. USDCAD quietly trying to crawl higher – watching 1.3700+ next resistance there.

24_02_2023_JJH_Update_03
Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1330 – US Jan. Personal Income and Spending
  • 1330 – US Jan. PCE Inflation
  • 1500 – US Jan. New Home Sales
  • 1500 – US Feb. Final University of Michigan Sentiment
  • 1515 – US Fed’s Mester (Non-voter) to speak
  • 1600 – US Feb. Kansas City Fed Services Activity
  • 1830 – US Fed’s Collins (Non-voter) to speak
  • 1830 – US Fed’s Waller (Voter) to speak

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

  • 350x200 steen

    Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article
  • 350x200 charu (1)

    FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article
  • 350x200 peter

    Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article
  • 350x200 althea

    Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article
  • 350x200 ole

    Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article

Disclaimer

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 (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

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.