FX Update: JPY and CHF diverging. What is driving the USD? FX Update: JPY and CHF diverging. What is driving the USD? FX Update: JPY and CHF diverging. What is driving the USD?

FX Update: JPY and CHF diverging. What is driving the USD?

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Yesterday seemed to demonstrate that Fed hawkishness at the margin will only register on the US dollar if risk sentiment weakness as the US dollar largely ignored the US jobs report implications for Fed rate hikes on Friday, only to rise yesterday in the midst of a strong wave of risk aversion that was then reversed later in the day. Elsewhere, JPY resilience while the Swiss franc stumbles is providing an interesting study in contrasts.

FX Trading focus: USD responds to yields only when risk sentiment also spooked

On Friday, the US jobs report suggested a US economy that is essentially at full employment (low payrolls growth combined with plummeting unemployment rate and hotter than expected earnings rises) and yet the US dollar largely shrugged off the development even as Fed expectations ratcheted a bit higher still, a move that has continued this week, together with fresh rises to new cycle highs at the long end of the US yield curve to new post-pandemic outbreak highs, even if yesterday saw a slight taming of the move. The latter comes ahead of key auctions for 10-year T-notes tomorrow and 30-year T-bonds on Thursday.  Yesterday seemed to show that the US dollar is only reactive to the rise in yields once it spooks risk sentiment more broadly, as the day saw a sharp deleveraging in equity markets (and risky assets like Bitcoin/crypto) that coincided with a USD rally before both developments reversed. The takeaway? The USD seems to only thrive at the moment during a liquidity/deleveraging pinch.

Elsewhere, the JPY has picked up a solid bid since it stumbled at the start of the year, especially noteworthy after its recent weakness that seemed linked to yield rises. More in the USDJPY chart discussion below. Elsewhere, the Swiss franc weakness is very interesting given the backdrop as the SNB intervened more heavily last week as seen in the most recent SNB weekly sight deposit data released yesterday. The sharp rally has possibly set up a cycle low in EURCHF on that front and has already challenged the key 1.1500 level, a major low from back in 2020 and the next level of note the August 2021 pivot low around 1.0700.

USDJPY burst above the 2021 high near 115.50 at the start of this year, but that upside has quickly faded even as Fed rate expectations and longer US treasury yields have pulled higher in recent sessions, an interesting contrast with the usual coincident behaviour. We’ll be watching how this develops as the yen, after yesterday’s broad rally, especially during the worst of the wobble in risk sentiment yesterday, seemed to be paying more attention to risk appetite than the normal lockstep reaction to US treasury yields. The 115.00 area looks pivotal. A number of other JPY crosses saw partial confirmation of bearish chart setups (EURJPY and AUDJPY, for example) yesterday – also watching these as the recent highs are important lines in the sand.

Source: Saxo Group

Today looks like another test for how reactive the market and the US dollar are to Fed expectations as two hawkish FOMC voters (Cleveland Fed’s Mester in TV interview later today and KC Fed’s George with a speech on the economy and monetary policy) are out speaking today, with now hawkish Fed Chair Powell set for a nomination hearing today. The prior four trading sessions have seen about 15 basis points added to the year-ahead Fed funds rate expectations without major market reaction and major banks are marking the Fed to four or more rate hikes this year. The next step would be either more aggressive QT than anticipated or rate hikes of larger than 25 basis points.

In Australia, not surprised to see a blowout November Retail Sales record as Aussie consumers were unleashed from lockdowns and the Trade Balance has come tumbling off the record surpluses of last year, a development that will likely extend as the Australian economy normalizes.

Table: FX Board of G10 and CNH trend evolution and strength
The most interesting developments here are in the recent momentum shifts as the JPY has picked up a strong bid from new lows near the beginning of the year while the CHF has stumbled badly over the last week, particularly yesterday.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Given our focus on CHF vs. JPY relative developments in today’s update, interesting to note that CHFJPY is already trying to flip negative today after a spectacular run higher into the beginning of this year.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – US Dec. NFIB Small Business Optimism
  • 1300 – ECB's Kazaks to speak
  • 1412 – US Fed’s Mester (voter) to speak on Bloomberg TV
  • 1430 – US Fed’s George (voter) to speak on economy and policy outlook
  • 1500 – US Fed Chair Powell re-nomination hearing
  • 0130 – China Dec. PPI

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.