AI trade gets Nvidia earnings boost while JPY spins into the abyss

Listen to the full episode now or follow the Saxo Market Call on your favorite podcast app.

Today’s Links

The FX Trader from today - my post on what is shaking in the FX market - which is the big JPY decline and whether the USD is set up for a breakout higher more broadly beyond USDJPY.

FTAlphaville notes the risk, for bears at least, that we are seeing an “AI bubble bubble”. That’s not really the conclusion of this micro-post, which is more about how Google searches are “handy for for retrofitting data around an argument” and no good at predicting future performance - so take note, bulls and bears.

The Op-ex Effect notes shifting dynamics in the options market into the monthly November and massive December options expiries and what these might mean.

Top Traders Unplugged interviews David Dredge with the wonderful subtitle of the “coming Hunger Games for global savings”. Yikes - he has a background in looking for convex protection strategies for investors and probably well worth a listening.

Chart of the Day - USDJPY vs US 10yr rates - a separation or a divorce?

The recent JPY action has been out of step with the long standing correlation between USDJPY and US yields as the JPY narrative has taken on a very different tone, with concerns that Japan is set to continue devaluing its currency in real terms by continuing to pursue a negative real rates policy in which inflation far exceeds the policy rate. Such concerns are structural and are impacting long Japanese bond yields, which are setting new multi-decade highs almost daily of late. This has little to nothing to do with US yields, which are locked in a tight range lately - hence the strong pull higher in USDJPY despite a very quiet US treasury market. Arguably, the US dollar deserves the same treatment if the Trump administration gets its way and cuts rates aggressively next year (though markets are only pricing about 75 basis points of cutting through the end of next year, with Powell set to step down next May.) So for now, the US policy rate remains relatively high and above the inflation rate, while longer yields have remained anchored - possibly on the US dollar’s role as global reserve currency and possibly in more recent weeks as liquidity woes seem to be weighing on some risky assets from crypto to even the broader stock market at times. The JPY deserves watching on the reaction to the Takaichi fiscal package set to be announced in Japan on Friday - if there is no “buy the fact” moment for the JPY, the huge post-1986 USDJPY highs from last year close to 162.00 will come into view again, which would suggest a breakout from this long phase of winding back and forth within the huge range to either side of 150.00 and send inflation risks in Japan soaring further and volatility risks across asset classes picking up aggressively on the need for Japanese officialdom to step in and prevent stampede risks - which could look like a global policy tightening if Japanese private savings are mobilized to return home.