us dollar closeup

Market switches gears as safe haven JPY reappears

Forex
Picture of John Hardy
John J. Hardy

Chief Macro Strategist

North Korean objections to the persona of Trump’s controversial new National Security Adviser John Bolton seem to be at the root of suddenly crumbling prospects for an historic Trump-Kim summit. Yesterday, Trump blamed Kim for “changing the scope of talks” while apparently South Korea is convinced that Bolton’s recent comments are the source of the blame.

In FX, this seems to have been at the root of a suddenly strengthening Japanese yen overnight and a weakening in the smaller G10 currencies, although some support for the JPY was already on the scene over the last couple of session as long US rates have failed to continue to push higher as we noted yesterday. The 3.00-05% area in the US 10-year benchmark was the key pivot zone on the way up and we are now back inside that zone.

Today, the focus in Italy is on whether the Italian president Mattarella will approve the proposed Five Star Movement’s Conte as candidate for prime minister as the post of Italian president retains considerable power. The announcement may or may not come today and Italian rate spreads have eased about 15 basis points narrower from their widest levels yesterday. The most consistent expression of EU existential fears has been in EURCHF, which has notched new lows below 1.1700 and is within striking distance of its 200-day moving average, a key technical indicator in past chart situations.

Other key event risks on the day are the Eurozone flash PMIs for May to see if there is any relief in the brutally negative data surprises of the last few months. Then we are on to April inflation data from the UK, with GBPUSD surviving a mild assault on key resistance before continuing lower yesterday. We noted yesterday that if the resistance into 1.3500 stays in place, the next focus area may be all the way to 1.3000 and even 1.2900.

Finally, we’ll have a look at the latest batch of Federal Open Market Committee minutes and the state of internal debate among Fed members. This is not a particularly anticipated set of minutes and rate expectations have been sidelined as a factor over the last week – meaning that a bar for surprise on the dovish side may be higher.

Chart: AUDJPY
The AUDJPY chart shows the degree of whiplash in FX themes, as the formerly hard-driving commodity currencies were suddenly slapped back lower (USDCAD got a strong boost after probing key support as well). The technical situation in AUDJPY is particularly pivotal, with the Ichimoku daily cloud playing such a prominent role in recent weeks/months, and the 84.0+ area as well as the top of the cloud providing the key resistance. No hope for the bulls here unless that resistance is taken out and the next step lower is the bottom of the Ichimoku cloud, which thins out in coming days and provides less support and then the lows for the cycle, although to get there, we might need to see both a failure of the “rising yields” then as well as fresh and broad risk aversion.

 
audjpy 230518 forex update

The G-10 rundown

USD – the US dollar rally remains in fairly good shape, though the focus of the strength is more EM and G10 small focus since late yesterday on the latest developments. This theme could deepen, which might see the JPY even outperforming a fairly strong USD.

EUR – the single currency is looking lower now versus the JPY as we would have expected given the circumstances of recent days as EURJPY may be a trade developing in addition to EURUSD for downside potential. Reminder that the 1.1710 area in EURUSD is a major support and perhaps the last one ahead of the 1.1500-1.1600 zone. (1.1500 was a huge structural area back in the 2015-2016 time frame and the actual range last November was 1.1554.

JPY – the JPY is suddenly perking up on geopolitical concern and a so far relative mild bout of risk-off, with easing yield pressures is also helping. Will likely need an acceleration in volatility to keep the JPY bid across the board, but the EM woes are wind at the JPY’s back as well.

GBP – sterling is facing a pivotal data point today that could see the pace of sterling selling pick up on a negative surprise as the market would likely lower expectations for an August rate move further. A risk-off tone is no help for sterling either.

CHF – EURCHF selling has deepened and have to imagine the seats at the Swiss National Bank are getting very warm do to something about the situation – would expect intervention, announced or not, around the 200-day moving average or at least around 1.1500 if that comes into view. Strong ad hoc risks of sudden EURCHF rally now on risk-friendly headlines from Italy if these are possible.

AUD – The Reserve Bank of Australia governor Lowe is to speak later. We suspect the Aussies strong run of luck is emphatically over with if global risk appetite has peaked for now. Note the AUDJPY chart above and the AUDUSD potential lower shaping up if the pair stays below resistance and especially if it cuts below 0.7500.

CAD – USDCAD is teasing range support below 1.2750 yesterday before a quick turnaround, emphasising the strength of that support for now and as the market mood toward the commodity currencies changed suddenly late yesterday. A close above 1.2900 could open the door for a test of the structural upside pivot zone between 1.3000 and 1.3100.

NZD – the kiwi sharply lower after is consolidation never threatened even the first major FIbo retracements against the USD. If risk appetite worsens, the kiwi would prove the weakest of the commodity dollars and a big range level is soon coming into view in NZDUSD not far below 0.6800.

SEK – EURSEK broke lower through the 9.25 area but has paused suddenly as weak risk appetite is a headwind for SEK bulls. A close back above 9.30 would sideline the tactically bullish SEK outlook.

NOK – EURNOK traders no doubt frustrated by the inability of the pair to break the lower support zone and the change of gears late yesterday is no boost to the NOK bulls. This could prove a pivotal day either way for NOK on risk appetite (weak risk appetite less NOK supportive) and US weekly crude inventories. 

Upcoming Economic Calendar Highlights (all times GMT)

0700-0800 – Eurozone May Flash PMI
0800 – South Africa Apr. CPI
0800 – Australia RBA’s Lowe to speak
0830 – UK Apr. CPI / RPI / PPI
0900 – Sweden Riksbank on Financial Stability
1345 – US May Flash Manufacturing/Services PMI
1400 – US Apr. New Home Sales
1430 – US Weekly Crude Oil / Product Inventories
1800 – US FOMC Minutes
2245 – New Zealand Apr. Trade Balance

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

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

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)

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.