Global Head of Macro Strategy
Summary: USDJPY suddenly finds itself below 154.00 Monday after trading above 159.00 just after the BoJ meeting Friday. Japan has only officially verbally intervened thus far, with PM Takaichi weighing in on that front as well. But sources also indicate that the New York Fed “rate checked” USDJPY, which many took as a sign that the US is reaching out a helping hand to Japan to help put a floor under its currency.
US Fed rate checked” USD/JPY rate? If so, there’s your sign that JPY has a floor. The market felt that Bank of Japan governor Ueda’s performance in the press conference Friday was the usual dovish stuff even after the initial read of the statement was arguably mildly hawkish, with its slight lifting of core inflation forecasts and one hawkish dissent in the vote. The market saw Ueda’s jawboning at the presser as an excuse to sell JPY and USDJPY posted new highs above 159.00, only to see significant selling emerge, sending the level well below 158.00 before the price stabilized near 158.25, with no official comment on whether intervention had taken place. Then a far larger wave of selling emerged in US hours that was triggered, according to sources, by the New York Fed “rate checking” USDJPY with a number of counterparties – simply inquiring the level, not actually intervening. The takeaway from that move is that the US is interested in helping Japan to stabilize and even support its currency. Why? At least partly, this could be due to the US-Japan trade deal, according to which Japan must invest hundreds of billions of US dollars into the US economy. In any case, this looks and feels for real, and at minimum, a very firm floor has been place under the JPY now, and it could lead to a significant and sharp repricing of the currency higher - more on levels in the USDJPY chart look below.
USD selling broadens and deepens. The US dollar was already on the defensive last week, in part on the latest Trump posturing over the issue of acquiring Greenland and at Davos and generally against Europe inspiring a “sell America” theme. But most of the move lower since early Friday has come on the big USDJPY move as the weight of selling there propagates across to other key USD pairs. Some may be reading the apparent New York Fed “rate checking” (see above) of USDJPY as a sign that the US wants a weaker US dollar. But what if it just mostly just wants the Japanese yen to stabilize? We can only take the move at face value, so it’s important to watch EURUSD as it threatens the cycle highs – last September’s 1.1919 intraday high – and needing to stay clear of the 1.1800 area to maintain the broad impression of USD weakness outside USDJPY.
Trump’s Fed pick to be made public this week? As we await this Wednesday’s FOMC meeting with little anticipation (nothing anticipated, no forecasts, etc.) Treasury Secretary Bessent has said that Trump may announce his nomination for Fed Chair this week. After he complemented Blackrock’s Rick Rieder as “very impressive”, the latter’s odds of being appointed Fed chair have risen almost vertically to 50% in betting markets like Kalshi, while Kevin Warsh’s odds have faded. Rieder is a non-academic with real experience in the market as Chief Investment Officer for global fixed income with Blackrock. He has the critical qualification: saying the policy rate should be lower, also claiming the inflation risks are fading.
Chart focus: USDJPY, Ichimoku daily
USDJPY has been hammered on the market’s belief that the US is weighing in to help Japan stabilize its currency. It’s been a long climb from the enormous support zone down at 140.00 that was in play all the way back in April of last year to the recent highs north of 159.00. But note that two key Ichimoku (a technical analysis framework popular in Japan) developments are afoot here: first, the dark-green “Lagging span” is cutting down through the former price level and second, the price action is trying to cut through the “cloud”, the shaded area. See more on Wikipedia if you would like to learn more about Ichimoku.
Technical and other observations for key pairs.
EURUSD – 1.1800 area now the key support for keeping focus higher, and 1.1900-20 is the last zone of resistance before the huge round figure of 1.2000 – a long history of stickiness around big figures in EURUSD
JPY pairs – the burning question now is whether market participants feel that there is merely a ceiling for JPY pairs or whether these developments greenlight a significant re-rating lower. I lean toward the latter interpretations and would expect very broad JPY strength, not just in USDJPY.
GBPUSD and EURGBP – the bearish EURGBP reversal last week got lost in the shuffle a bit with so much volatility elsewhere, but that is the key for the relative read on sterling strength – note the importance of the 0.8650 area for that pair. For GBPUSD, still some way to the post-2021 high at 1.3789.
AUDUSD and AUD pairs – AUD has taken off and justifiably so, given the strong commodities markets and the lift in Australian yields – key event risk this week is the Wednesday Australian CPI data for cementing an RBA rate hike next week. AUDUSD at 0.6937, the 2024 high, was nearly touched today. AUD strength looks solid versus Europe as well.
USDCAD – CAD underperforming the other commodity dollars as is often the case when the greenback is weak – also note the Trump threat of tariffs if Canada signs a trade deal with China.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
Note the stunning USD negative reading after a drop of 7 points over the last five trading days, while USDJPY has improved 6.8 points in the space of two days – even if still nominally negative. On the positive side, AUD and SEK continue to stick out, but if the JPY holds stronger, much less strengthens further, it will quickly take chart. Silver at 17.7 – this is once-in-a-lifetime stuff.
Table: NEW FX Board Trend Scoreboard for individual pairs. After 230 trading days, we are entering the final days of the EURJPY up-trend, assuming the pair doesn’t rally very sharply over the coming session or two. USDJPY is already ready to flip to a negative trend today if it holds lower after a 91-day uptrend.
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