FX Update: JPY spinning into the abyss after FOMC non-event

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The market got what it was looking for from the FOMC meeting last night, which was nothing. There has been a bit of back and forth since that meeting and the subsequent Biden address on his big spending and tax proposals from here, with the USD weak and the JPY weaker still, while the commodity currencies are enjoying a fresh bid and USDCAD runs to aggressive new multi-year lows.

FX Trading focus: JPY aggressively lower as yields bounce back after FOMC

The market got exactly what it expected yesterday from the FOMC, a statement with very few changes – basically small adjustments to the language describing the current state of the economy – and a Chair Powell presser that saw Powell doing everything to defend against the idea that the Fed even talked about when the appropriate time would be to talk about tapering purchases.

After the equity market close, risk sentiment enjoyed a boost and the USD sold off further on President Biden’s address before a joint session of Congress, one that outlined his priorities in the nearly $4 trillion of proposed stimulus packages on mostly infrastructure for the first round and social welfare programs for a later second round of $1.5 trillion. While he has tried to pay the bipartisan card in drumming up support for the bill, the 100% partisan vote on the last stimulus round could make his overtures a tough sell, which means that among others, the “kingmaker” vote in the Senate – “conservative Democrat” Joe Manchin, will need close watching for how much of the spending and taxation plans are likely to make it into law. For now, markets are not sweating the implications of eventual tax increases.

In yesterday’s piece, I perhaps overthought things in asking whether the treasury market might ignore the Fed’s wait-and-see approach and front-run an eventual taper message to be rolled out sometime this summer if inflation and employment levels are set to improve sharply. The immediate reaction was of course nothing of the sort, as the short end expectations for Fed tightening retreated slightly and the USD weakened fairly sharply, if modestly, while choppy longer Treasury and T-bond futures ended the day approximately unchanged relative to the day’s starting point. But the reaction by lunchtime here in Europe has developed in the opposite direction for yields at least, with a new local high in long US yields as German Bund (10-year sovereign) yields are also pressing on the key highs near -20 bps again today, helping to drive EURJPY to yet another cycle high in what has been a remarkable move from last Friday’s lows. A solid leg higher in EU yields would seem to be already priced into (as this rise would likely further tighten the EU-Japan yield spread, as Japan has declared the intent to cap 10-year Japanese Government Bond yields at 0.25%. Currently the 10-year JGB yield is +10 basis points, far below the early March high of +18 bps.

AUDUSD has chopped back and forth and teased a break higher on a few occasions recently without following through, partly on the weak CPI print in Wednesday’s Asian session. And as I have noted previously, the backdrop looks very positive for a stronger Aussie if consider the basics like risk sentiment and we glance over at hot metals markets, while yield spread developments are utterly uninspiring to even negative for the pair and if US yields rise toward the cycle highs again, it could spook markets from commodities to equities, crimping risk sentiment and likely the AUD. The latter drag is probably why we aren’t already trading at 0.8200 or higher for AUDUSD. For now, we’ll let the technical developments lead the way, with a solid close above perhaps 0.7825 a hook for new longs that makes clear the risk/reward setup (stop south of 0.7770), while bears would either hope for a failed rally and then reversal or have to sit on their hands for a move back below at least 0.7700, if not 0.7650.

Source: Saxo Group

Elsewhere, the strong bid tone in risk sentiment in the wake of the FOMC meeting is boosting commodity FX and EM currencies, with USDCAD posting strong new lows for the cycle and the lowest since early 2018, while USDRUB has worked well back below the pivotal 75.00 area.

Table: FX Board of G-10+CNH trend evolution and strength
The JPY and USD are vying for bottom spot on the FX Board trend evolution, while NOK is taking the top spot in trending positive on the combination of a firmer euro and the highest oil prices in more than a month, as EURNOK marks a new cycle low today well below 10.00.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
The EURJPY rally now showing the hottest trend reading in the individual pairs, while USDNOK is and USDCAD are also running hard to the downside on the rise in oil prices. Note USDJPY trying to post a positive trend cross-over reading today, which is a tough one to buy without a more impulsive rally in US treasuries that supports the USD more broadly.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1200 – Germany Flash Apr. CPI
  • 1230 – US Q1 GDP Estimate
  • 1230 – US Weekly Initial Jobless Claims
  • 1430 – US Weekly Natural Gas Storage Change
  • 2330 – Japan Mar. Jobless Rate
  • 2350 – Japan Mar. Industrial Production
  • 0100 – China Apr. Manufacturing and Non-manufacturing PMI 


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 (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
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. 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 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.