FX FX FX

FX Update: Is the JPY finally ready to roar?

Forex 3 minutes to read
John Hardy

Head of FX Strategy, Saxo Bank Group

Summary:  The backdrop has increasingly weighed in support of the JPY as safe haven seeking in sovereign bonds has eroded the negative implications of the Bank of Japan’s yield-curve-control policy. And speculative positioning is very short the Japanese currency. Last week’s brief blow-up in the JPY crosses may have been a trial balloon for a far larger squeeze on JPY shorts.


FX Trading focus: JPY focus on supportive backdrop

The market action yesterday and overnight was at times rather out of synch with recent cross-market correlations. Yes, the worst day in two years for US stocks did see the US dollar rallying in most places, but only modestly so relative to the negative energy in risk sentiment that has been the "norm" in recent months. One possibly source of this was the big mark-down in USDJPY intraday yesterday, which shows that attention may be shifting more towards the old safe-haven role of the Japanese yen on the latter’s traditional sensitivity to the strength in safe-haven bonds, which picked up a powerful bid yesterday, flattening the US yield curve and suggesting a weaker economic growth/inflation outlook. Since much of the early USD buying in the aggravated rally in the greenback since late February was in USDJPY due to the rise in US long treasury yields, any further fall in these yields will likely continue to support the JPY the most among major currencies. A potential “after-burner” for the risk of a tremendous bout of JPY volatility here is market positioning, with the US futures speculative positioning at historically stretched levels.  That’s it for today’s update – JPY volatility is likely to dominate for the coming sessions if it is properly unleashed.

Chart: USDJPY
USDJPY poking at the important local 127.50 support and other JPY crosses on the verge of (EURJPY and AUDJPY) or already having broken down (GBPJPY and NZDJPY) through some key support levels. The next obvious focus here could be the 125.00 round-level area, but when the yen works up a head of steam, it has a tendency to overshoot – so potential to 120.00 can’t be ruled out if equity markets are suffering a real liquidity event and safe-haven seeking in US treasuries sends the US 10-year yield benchmark, for example, back to 2.50%.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
Holding breath here for JPY volatility potential – and with USDJPY under so much pressure, it could block the USD from serving as a safe haven in the crosses.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Apropos JPY crosses – USDJPY is on the verge of crossing over to negative finally if it closes near or below the 127.50 trigger level.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1130 – ECB publishes minutes of April ECB meeting
  • 1230 – ECB’s Guindos to speak
  • 1230 – US May Philadelphia Fed survey
  • 1230 – US Weekly Initial Jobless Claims
  • 1400 – US Apr. Existing Home Sales
  • 1500 – Sweden Riksbank’s Floden to speak

Disclaimer

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)

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

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

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 Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML 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.

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 Markets 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.