Global Head of Macro Strategy
Summary: The US dollar bounced back after Trump backed off on his tariff threat against Europe over Greenland, but USD bears still have a case. AUD jumped on a strong December jobs report and rising anticipation of RBA rate hikes. JPY wilts once again despite further stabilization in JGB’s.
What to know
JGB calms further – but JPY hits the skids again nonetheless. The JPY was only weakly reactive to the chaotic sell-off in long-dated Japanese government bonds – most intensely in Tuesday’s Asian session. From a Monday low below 182.63 in EURJPY, for example, we saw EURJPY rally back to 185.00 as the JGB selling unfolded. But now we have two days of a strong comeback rally in JGB’s with no comeback in the JPY – EURJPY even hit a new all time high in the late Tokyo session Thursday. So trying to connect the two markets seems to be a red herring for now. Is there a suspicion that the strong rally in JGB’s is some sort of official intervention to prevent yields from heading higher, a kind of un-declared yield curve control (YCC) intervention move and therefore JPY bearish as the currency will have to become the shock absorber? Not sure yet – let’s see what the BoJ delivers (almost zero odds of a rate hike at the Friday BoJ meeting). Eventually, proper simultaneous stabilization of Japan’s bond market and currency would have to be driven by capital inflows.
Trump Greenland TACO. It was no shock that the US is not set to invade Greenland, but the explicit climbdown from Trump on assessing tariffs against European countries over its lack of willingness to “sell” Greenland to the US had the market calling “TACO!” (Trump Always Chickens Out). Eventually, a new framework agreement that Trump referred to could see small US carveouts of territory in Greenland that are considered sovereign US territory if we are to believe Trump’s social media posts and various press sources. In any case, this drove relief for risk sentiment and partially defused the “sell America” trade that saw EURUSD bid from below 1.1600 to well above 1.1700 at the start of the week. Alas, the sell America trade in terms of European savings re-allocation back to Europe may have legs and Germany is set to drive a significant fiscal expansion this year. Note SEK hanging in there and even strengthening to new highs versus the euro – this is sign of solidifying European growth hopes ahead if any.
AUD surge for real? AUD surged in Thursday’s Asian session on some strong Australia jobs data. The data is often wildly spiky and mean-reverting from month to month, and strong payrolls growth was expected in December after November’s dip. And yet, the employment rate dipped 0.2% to 4.1% against expectations of no change. The February 3 RBA meeting is priced at more than 50% probability of a rate hike now and AUDUSD has hit new highs since late 2024, with EURAUD also breaking out to new lows.
Chart focus: AUDUSD
The prior AUDUSD break higher failed to achieve liftoff as the US dollar rally in the first two weeks of the year aborted lift-off. But now AUDUSD has snapped back on the combination of greenback weakness and a fresh surge in the AUD driven by rising anticipation of RBA rate hikes. The backdrop of strong risk sentiment and strong metals prices is also supportive (but again, it has been all along – why now?). The rate differential trend between Australia and the US, were it the only driving factor, should long ago have seen us rising above 0.7000 and even threatening 0.8000. It all feels very late for the market to finally discover that AUD should be trading far stronger – are we set for a durable trend higher here in the AUD?
Technical and other observations for key pairs.
EURUSD – disappointing for the bulls that the rally couldn’t hold 1.1700, but one might have expected a bigger sell-off than the one to the 1.1670 low we got in Asia’s Thursday session after Trump’s complete collapse in his posturing on tariffs against Europe over the Greenland issue. So let’s call bearish reversal risk if we close the week or early next week below 1.1650 and partial confirmation that we need to keep the focus higher if we maintain altitude up in the 1.1700-1.1750 zone. I prefer the latter, but let’s see.
JPY pairs – The market is expecting nothing from the BoJ – is this fair? Between now and the Japanese election on February 8 it will be tough to gauge the situation – but watching the cycle highs in USDJPY at 159.45 now for whether we test Japan’s intent to keep a lid on things.
GBPUSD and EURGBP – the EURGBP rally on the US-Europe standoff over Greenland and tarfiff escalation risks has partially, but not fully, deflated. The 0.8675-0.8700 area is the pivot zone for whether this recedes entirely and focus on the big support zone just ahead of 0.8650
AUDUSD and AUD pairs – AUD in breakout mode against multiple currencies – not only in AUDUSD, but EURAUD also breaking down.
USDCAD – CAD underperforming here relative to other commodity dollars.
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.
The standouts here are clear – AUD and SEK on the strong side and JPY on the weak side, with EUR and the US dollar also slightly weak, but the USD losing more momentum over the last week than the Euro. Gold and silver remain absurdly strong in the big picture.
Table: NEW FX Board Trend Scoreboard for individual pairs.
Recent moves mostly about trend deepening rather than new trends, but the newest moves are the unconvincing EURCAD signal as that pair is buried midrange of the last many months, while NZDUSD is more interesting technically as that pair is challenging above the top of the multi-month range and the 200-day moving average.
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