JPY on the rise again. What is the potential?

Pep in the krone’s step as EURSEK breaks down
The Swedish krone has sprung to life over the last couple of days, a development that is hard to associate with any developments out of Sweden save for today’s far hotter than expected January CPI figures. But the move began on Tuesday and if we look at the news flow, it could be that the SEK strength is on the general relief that Trump is set to use tariffs as a negotiating tool, not a massive revenue generator for the US government. This is EU-positive if so, and the Swedish economy is leveraged to the outlook of the European economy. With an incoming German government set to open up the fiscal taps to at least some degree and Europe generally needing to stimulate domestic demand if its export outlook is challenged and we have a potentially quite potent positive story for SEK, which is extremely weak to begin with. In short, this SEK move could have legs. Watching how the pair behaves on a possible test of the major low near 11.25 from last September.

Bank of England incoming
Today’s Bank of England is up within hours of the release of this update, so anything said here will be quickly out of date, but my assumption is that the Bank of England will deliver a dovish cut and will see the market price in a further 25 basis point cut .n March (only about 20-25% priced by market ahead of the meeting). The more interesting question is the market’s reactivity here and whether the delivery of more BoE cuts than currently priced for the balance of this year will weigh much on sterling.

On the concerns of a trade war breaking out with Europe after this past weekend, EURGBP dropped all the way back to the 0.8300 area as Europe is more exposed on trade than the twin-deficit UK, which has not been a focus of Trump. Bringing some further relief for sterling is the drop in global yields that have eased fears that the UK is set to get caught up in a debt spiral (the chief driver of the sterling weakening episode in January). Regardless, the 1.2500-50 zone in GBPUSD is critical resistance after yesterday’s reversal, and for EURGBP to revive the upside view (my default expectation eventually if we get the dovish lean from the BoE today), the pair needs to rally back up into the 0.8400+ area in a hurry.

Given the BoE versus BoJ divergence risks here, GBPJPY may  prove a popular expression for JPY strength and the technical setup there is quite interesting on a break below the 2025 low of 189.33 and then the early December low of 188.09.

Table: FX Board of G10 and CNH trend evolution and strength.
Note: the FX Board trend indicators are only on a relative scale and are volatility adjusted. Readings below an absolute value of 2 are fairly weak, while a reading above 3 is quite strong and above 6 very strong.

JPY and SEK strength are the stand-outs in the trending category outside of the strength in precious metals, with the Euro the weakling of the lot.

Table: FX Board Trend Scoreboard for individual pairs.
The recent volatility has disrupted the longer term trends almost everywhere – watching for new patterns to emerge and whether NOK can join SEK in trending against the Euro and possibly sterling in a durable way, as well as whether the JPY rally will have legs this time I key crosses.