FX Update: JPY remains top dog

Forex 7 minutes to read
John Hardy

Head of FX Strategy

Summary:  The Japanese yen remains firm and could rise further as long as global yields continue to head lower. The trend could even accelerate on any fresh volatility in risk assets.

Trading interest

  • Maintaining long AUDNZD with stops below 1.0420 for 1.0625 and eventually 1.0700
  • Maintaining half position short AUDUSD –as long as price action remains below 0.6860
  • Shorting EURJPY for 112.00 as long as remains below 119.50

A Bloomberg article out this morning highlights tight conditions for USD liquidity with a look at the currency swaps market, where there are signs of strain as basis swaps make lending in USD expensive. The article offers examples that illuminate the difficulties for foreign bond investors – particularly Japanese investors, to realize attractive returns or any returns at all on a hedged basis. Aggravated USD liquidity shortages are a wrecking ball for global assets - particularly in emerging markets.

The leader of Italy’s Lega party, Matteo Salvini faces a tough path to snap elections due to the need to pass a budget this fall – according to an FT article (paywall), “No election has been held in the early autumn since 1919.” Parliament is out of session but returns inside of two weeks, when it will hold a no-confidence vote. Italy’s yields spiked versus core EU yields (10-year Germany-Italy spread rose about 30 bps) on Salvini announcing he would like new elections as the market anticipates existential EU strain linked to Salvini demands for more generous fiscal outlays. While the timing of an election is uncertain, Lega’s popularity has risen in the polls sufficiently to indicate that a centre-right majority coalition might be possible with Berlusconi’s Forza Italia and the Brothers of Italy party.

Late last week we suggested markets are at pivotal levels after the partial recovery from last week’s latest US-China trade tension escalation. Within G-10 currencies, AUDUSD is our basic proxy, where the focus remains lower as long as we remain below the 0.6825-50 area. Remarkably, the Japanese yen continues to grind higher and didn’t need much support from bond markets as USDJPY scrapes new lows. With Trump threatening sanctions and intervention on any major trade partner moving to ease monetary policy, the BoJ policy mix looks unmovable for now. A continued run lower in USDJPY toward at least 100.00 looks possible. Concerns that the EU will remain slow to respond to the growth slowdown and the risks to the economy from Brexit could keep EURJPY on a downward trajectory to the 110.00 area.

The economic calendar for the week ahead is rather light, but a few interesting points, including tomorrow’s German ZEW survey for August – after July saw the worst Current Situation component since 2010. Also tomorrow we have the US July CPI data.  Wednesday sees Germany’s Q2 GDP estimate (expected negative) as well as the EU GDP estimate. Thursday’s Norges Bank meeting is the central bank highlight of the week in G10. More discussion of individual calendar highlights in the G10 rundown below.

EURJPY saw its lowest weekly close since early 2017 last week and could continue to grind lower as the BoJ look set to maintain course while the rest of the world eases and the EU is in a world of hurt with the risk of a recession that could risks further aggravation from a hard Brexit. Not much in the way of support in the longer term chart here until down towards 110.00.

Source: Saxo Bank

The G-10 rundown

USD – firm outside of the G3 and versus the CHF, but could fall versus the hard charging JPY. US CPI up tomorrow and Retail Sales on Thursday, but economic data is not in the driver’s seat for the USD outlook – liquidity and trade issues are paramount.

EUR – the euro not much of a safe haven currency – interesting data points through tomorrow’s German ZEW and interesting to watch how the market treats Italian debt as a new  election looms eventually.

JPY – remains firm and if risk appetite, at key levels entering this week, fades again, the currency could continue to drive higher, driven by strong bond markets/falling yields.

GBP – EURGBP cleared new highs above 0.9300 this morning and GBPUSD staring down 1.2000 as no relief in sight for hard Brexit risks, with the EU side showing no signs of backing down.

CHF – playing copycat to JPY moves and hard Brexit risks are adding a bit of extra fuel to the CHF strength. EURCHF looks heavy as long as it stays below 1.10.

AUD – heavy below 0.6800 again in AUDUSD as the ongoing collapse in iron prices has added a new negative angle on the Aussie over the last week on top of the US-China trade tensions. Key employment data release on Thursday sets the tone further.

CAD – Canada was overdue a weak employment report after an absurdly positive April data point of +106.5k and that’s what we got at -24.2k for July – hard to use the data series for much. More supportive was the hourly wage figure, which rose to a robust +4.5% year-on-year in July – the highest since the financial crisis. But can CAD stay ahead of a firm US dollar? 1.3300-25 is the decisive area in USDCAD.

NZD – surprisingly little follow-on weakness in NZD after Adrian Orr’s dovish broadside. Still looking for downside risks via AUDNZD and NZDUSD/NZDJPY, etc.

SEK – Swedish CPI up on Wednesday as the focus this week on EURSEK cyclical top above 10.80 if risk appetite worsens.

NOK – market suspects the Norges Bank could see its determination to maintain a hiking bias softened at this Thursday’s Norges Bank meeting and weaker oil prices are providing pressure as well as EURNOK last week the highs since the global financial crisis above 10.00.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 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
  • 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
  • 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
  • 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

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

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 (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

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

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.