FX Update: USDJPY reversal attempt ahead of US treasury auctions FX Update: USDJPY reversal attempt ahead of US treasury auctions FX Update: USDJPY reversal attempt ahead of US treasury auctions

FX Update: USDJPY reversal attempt ahead of US treasury auctions

Forex 6 minutes to read
Picture of John Hardy
John Hardy

Head of FX Strategy

Summary:  The US dollar has been under broadening pressure lately, but USDJPY has rebounded sharply ahead of a series of large US treasury auctions this week and rebounding US long yields. Elsewhere, we wonder when resistance will arrive, if ever, for this run-up in US megacap equities and risk sentiment that has helped keep the USD on its back foot.

The most interesting change of recent behavior we note today is a sharp rise in USDJPY back above 107.00, arguably an incipient sign of a bullish reversal even if a bigger move is needed to more firmly reject the recent sell-off wave. More on USDJPY below. A likely key driver for that pair will be this week’s US treasury auctions of unprecedented size for the maturities on offer, including a $42 billion auction of 3-year notes today, a $32 billion auction of 10-year notes tomorrow and a $22 billion auction of 30-year T-bonds on Wednesday. Yields rose on Friday, but the range in the longer yields has been extremely tight. The auction outcomes and their interpretation could be important for the US dollar this week, which has fallen to interesting support areas in pairs like AUDUSD and USDCAD.

A strong auction results would seem to point to strong ongoing demand for safe haven debt and is USD positive, all other things equal (I.e., assuming other markets pay attention, which they may not if yields merely remain orderly and rangebound). A very weak result at these auctions would be a bit more interesting as it could suggest less international appetite for US debt. Sure, the Fed will keep the situation and yields under control with an eventual move to yield-curve-control in all likelihood, but any sense that the world is having a hard time absorbing the torrent of approximately $3 trillion in US treasury issuance over the next few months would be an interesting test for the USD.

Wrapping up Friday’s US and Canadian jobs reports, the headlines may hint at “not as bad as expected” but we find hardly any reason for cheer from these terrible numbers. In the Canadian case, the “expectations” seemed wildly pessimistic at -4 million, which population-adjusted would be the equivalent of about -40 million jobs lost in the US. As it was, the more than 2M jobs lost in Canada is bad enough and approximately at the same clip as the losses in the US. The market continues to ignore current data for the moment, no matter how bad, and it may not be until the June data cycle or later that we start to draw longer term conclusions on the shape of the recovery. As for the US average hourly earnings growth rising to 7.9% in April, this is clearly also misleading, as the new average is based on higher paying salaried positions that are left as it was a vast swath of lower-paying service jobs that were the first to go.

The week ahead looks important for the USD for the treasury auction angle, but may also have plenty of opportunity for inputs from the Fed, with two FOMC voters out speaking tomorrow (the very dovish and very concerned Kashkari and the Philadelphia Fed’s Harker) and Chair Powell himself speaking on Wednesday. Given the long wait for drawing conclusions on the shape of the recovery we note above, another key potential issue will be any new rise in US-China tensions, and any a-ha moments on the US election if polls begin to show a more persistent tilt against Trump’s fortunes (with those two issues possibly somewhat intertwined, as many GOP strategists favour an explicit anti-China strategy.)

USDJPY has executed something of an about face against the US dollar after the pair slid to a recent low, however a low that coincided with relative JPY weakness elsewhere and no signs of distress in the options market (USDJPY risk reversal showing an persistent, relatively rapid evaporation of premiums for puts). This move above 107.00 today looks tactically interesting, but arguably we need a bigger move above 108.00 and the 200-day moving average to excite more interesting in upside potential. We also watch US yields this week over the incoming auctions noted above and broader risk sentiment. Strong auctions resulting in sharply lower US yields and weak risk appetite could keep the pair rangebound or slow any upside potential as the JPY and the USD would likely prove safe haven currencies in those conditions.


Source: Saxo Group

The G-10 rundown

USD – turning a bit stronger after weakness against the smaller currencies this morning – this week feels like an important test for whether the USD maintains support.

EUR – very pressing medium- and longer term questions on EU existential concerns as new fronts open up between the German Constitutional court and EU institutions, but pricing this for the short term difficult. Watching EURJPY resistance around 116.00 and for a possible EURUSD breakdown if the price moves below 1.0750.

JPY – US yields an important factor here and risk reversals continue to remove the premium for USDJPY puts. But still suspect JPY in broader terms would firm on any new downdraft in global risk sentiment and thus carry trades.

GBP – tensions around the post-Brexit transition period terms of trade are creeping back into the headlines, and the next few weeks should produce a further sense of where things are headed there, though still somewhat early days with Covid19 fallout distractions as far as the eye can see. EURGBP seems very unwilling to break down for now.

CHF – the latest sight deposit data showing SNB still intervening, but at a slower pace – looks like 1.0500 in EURCHF is the line in the sand for now.

AUD – AUDUSD had a go at the 0.6570 resistance overnight and has stumbled rather quickly toward session lows as of this writing – momentum beginning to roll over if we see a weak close today – watching US-China tension risks on top of correlation with general risk sentiment.

CAD – That 1.3850 twice-touched area in USDCAD an important support for bulls keeping the focus higher, with weeks of rangebound price action meaning we need a very large impulse move and rally above 1.4250 to excite interest in further upside potential.

NZD – easy to argue for long term AUDNZD upside on the RBNZ’s more aggressive style and the secular rise in Australia’s current account surplus, but US-China tension headline risk could drive a sudden setback at any moment. Options, anyone?

SEK – EURSEK appears to have completely a major topping move by having retraced as far as 10.57 from the top over 11.20 (the highest daily close) , but plenty of room for a throwback rally if risk sentiment ever consolidates

NOK – EURNOK still hasn’t taken out the 11.00 area and arguably needs a longer term crude oil price break-up to get the ball rolling.


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 (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

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.