FX Update: Big stakes for USD and JPY over US CPI release. FX Update: Big stakes for USD and JPY over US CPI release. FX Update: Big stakes for USD and JPY over US CPI release.

FX Update: Big stakes for USD and JPY over US CPI release.

John Hardy

Head of FX Strategy

Summary:  The brutal JPY strengthening move has continued, helped along in the case of USDJPY by USDCNH weakening overnight as China’s lending data was stronger than expected. A critical test today on whether the USDJPY slide is halted in its tracks or finds further momentum over the June CPI release. The Bank of Canada meets today, with the market divided on the odds for a hike, but even if the BoC delivers a hike, there is likely little hawkishness potential in the guidance.

FX Trading focus:

  • Brutal JPY strengthening move, USDJPY and US dollar in general face key test over US CPI release today.
  • Bank of Canada announcement: finely balanced odds for a hike, but it will be a dovish hike if we do get one.

USD and JPY over US CPI today: big stakes
The USDJPY correction lower has continued with solid momentum, testing well below 140.00 today. While the JPY is broadly stronger, the impact of USDJPY selling has been felt across many other USD pair as well, particularly vs European FX. Some strong lending data out of China and official praise of the Chinese tech sector offered a considerable boost to CNH overnight, helping the USD broadly lower in the Asian session. Much of the JPY strengthening has built since the Bank of Japan reported stronger than expected wage growth in May of 2.5% year-on-year and on a Bank of Japan deputy governor Uchida late last week discussing policy tweaks, if still in cautious terms. This is leading to bets that we could be set for a dramatic BoJ policy convergence with the rest of the world, possibly starting as soon as the July BoJ meeting.

That brings us to today’s CPI report from the US and whether it can aggravate and extend recent developments and this BoJ convergence story on softer than expected core inflation data or if the market is getting ahead of itself. We would need a month-on-month print for the June CPI number today that is below the 0.3% expected to really test that scenario. An in-line print will test conviction in recent developments (given the hard lean on disinflationary outlook), while a hotter than expected print could engineer a large reversal and save the US dollar for now. For USDJPY, long US yields are also critical as a coincident indicator after they recently pulled above 4.00%, only to retreat sharply.

USD technical stakes
The US dollar picture is quite mixed across G10. In the case of USDJPY, we have merely unwound the prior strengthening since early June.  EURUSD, meanwhile, trades some 60 points below the high of the year just below 1.1100, while GBPUSD has broken free to the upside. AUDUSD is in a completely different place – still rangebound and even reversing back lower after an attempt to break above local resistance in the 0.6700 overnight. (GBPAUD has risen to more than three-year highs and ex-pandemic the highest level in seven years). The technical of the USD index are very clearly etched here, with the double bottom just below 100.80 from early February and mid-April now only some 0.50% from the overnight lows. Trend followers would likely pounce on a break and hold below that level.

In the update Monday, I focused on the positioning risks in the FX market (using US currency futures, admittedly a small sideshow relative to the total market, but solidly indicative of trend following behaviour and conviction). The JPY short has been a notable standout, but sterling, euro and Mexican peso speculative longs are also prominent, and these currencies have remained strong save for a brief wipe-out in the Mexican peso last week, so we can’t discuss a broad positioning readjustment just yet, although certainly stressed short JPY positions have no doubt helped to fuel this JPY rally. What next for USDJPY depends on the status of the Japan vs. rest-of-world policy convergence narrative as discussed above. So far, we have a very large and steep correction on our hands. The next important levels lower are the prior resistance coming in just below 138.00 and then perhaps the 137.15 area 200-day moving average, although the major 38.2% retracement of the rally off the March lows has already come into view. To the upside, a strong close today after perhaps hotter than expected core US CPI data later could put in a strong support line at today’s lows – the situation feels pivotal.

Source: Bloomberg

Bank of Canada preview
The Bank of Canada restarted its hiking cycle at its May meeting after a pause earlier this year to assess the impact of its tightening regime. A slim majority of observers are looking for another 25-bp nudge higher to take the policy rate to 5.00%. On the one hand, it’s worth asking why the BoC should bother to restart its tightening regime in May only to immediately pause at the very next meeting. But data out of Canada has eased the pressure on the Bank of Canada to do more, after May CPI came in softer than expected at a 3.8% “trim” core rate and the latest earnings data was surprisingly weak, as was a June Ivey PMI near 50. So of all the scenarios, I would rule out the most hawkish ones given the softer data. Even if we do get a hike, the guidance will likely be dovish to non-committal.

A side note: the Bank of Canada must have its eye on the housing market and the eventual mortgage reset ball in coming quarters, as Canadian mortgage debt is based on five-year mortgage debt, although much of that was likely refinanced in 2020-2021. Still, the higher rates have slowed new construction at a time when Canada’s immigration has picked up notably, and rents are rocketing higher on the supply shortage. One data series I found shows rents up 2.7% in just the first five months of this year. This means that the more the BoC ratchets up rates, the more rents may rise, a reflexive relationship not likely in any of the BoC’s models.

Table: FX Board of G10 and CNH trend evolution and strength.
The JPY momentum shift has been profound over the last 5 days. It is hard to take the positive trend reading seriously just yet as the prior weakening of the JPY was on such a large scale that more evidence is required to establish that we are in a JPY uptrend. Elsewhere, the sterling rally has continued, with EURGBP testing new lows for the year yesterday and GBPUSD testing new highs and NOK attracted attention yesterday on EURNOK breaking down.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Some specific developments mentioned above, but do note that EURJPY is not in a downtrend despite the negative reading now on our trending indicator, which does not expand the “window size” and can’t be aware that this large EURJPY sell-off sits atop a massive prior weakening since early April. More evidence needed there and in other JPY pairs before we can raw conclusions. Note that spot gold (XAUUSD) is sitting on the verge of a downside flip – the 1900 level critical there.

Source: Bloomberg and Saxo Group
Upcoming Economic Calendar Highlights (all times GMT)
  • 1230 – US June CPI
  • 1345 – US Fed’s Kashkari (Voter 2023) to speak
  • 1400 – Canada Bank of Canada Rate Decision
  • 1700 – US Treasury to auction 10-year notes
  • 1800 – US Fed’s Beige Book
  • 2000 – US Fed’s Mester (voter 2024) to speak
  • 2100 – New Zealand Jun. REINZ House Sales
  • 2301 – UK Jun. RICS House Price Balance
  • 0100 – Australia Jul. Consumer Inflation Expectation


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/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992