FX Update: JPY surges as US banks stole limelight from Powell. FX Update: JPY surges as US banks stole limelight from Powell. FX Update: JPY surges as US banks stole limelight from Powell.

FX Update: JPY surges as US banks stole limelight from Powell.

John Hardy

Head of FX Strategy

Summary:  The FOMC brought as little impact as possible and did so by design, as the statement downshifted forward guidance on further tightening without any pre-committing to a policy pause. The press conference saw Fed Chair Powell studiously avoiding sending signals on policy guidance. The jump in the JPY and lurch lower in risk sentiment and US yields in late trading was linked to sudden new concerns for the US banking sector. Elsewhere, NOK jumped as Norges Bank highlights the weak NOK, with ECB out just now.

Today's Saxo Market Call podcast
Today's Global Market Quick Take: Europe from the Saxo Strategy Team

FX Trading focus: FOMC defers to incoming data for next steps. JPY rips higher again as treasury yields plunge on fresh US regional bank concerns. NOK kneejerks higher on Norges Bank. ECB incoming.

Bias shifts today:

  • JPY: USDJPY trading focus shifting to selling strength (sub-136.50) unless data takes US yields back higher.
  • NOK: more constructive on finding ways to get long (NOKSEK) after FX mentioned in today’s Norges Bank
  • EUR: awaiting how euro settles after ECB today. EURUSD pivotal in 1.1100 area.
  • AUD: looks very heavy again. Downside trending picking up in AUDNZD. Possibly AUDJPY also tilting lower (watch yields).

The FOMC brought as little drama as conceivable, perhaps slightly on the hawkish side relative to market positioning and expectations, but it was clear from the statement and the Powell press conference that the Fed is attempting to deliver as little forward guidance on policy as possible. In the statement, the language pointing to further tightening was softened to indicate that incoming data will determine whether any further tightening is necessary. Powell’s press conference saw the Fed Chair studiously avoiding sending anything that could be mistaken for pointed guidance. Some observers, like Bloomberg’s John Authers, did pick up on some nuances that were arguably dovish, but pulling away any message was all in the inferences. One of those, as Authers argues, is that Powell’s lack of greater concern expressed on the regional bank issue helped spark an ugly slide in regional bank stocks late in the session yesterday, even before the press conference was done. And after the close, PacWest announcing that it was “reviewing its strategic options”, including a sale, spooked sentiment thoroughly and sent US yields lower still.

The particularly are extremely different, but this feels a lot like Bernanke not having a sufficient grasp of the dangers of the leverage in the US housing market back in 2007. Could we be looking at another weekend sale of a bank and at what point does this situation become systemic until the Fed and other regulators provide a blanket approach to the issue – when two more banks go the same route, or ten or twenty? And can they do so with a dysfunctional Congress sidelined by the debt ceiling stand-off?

This Fed is in hot water for having gotten the banking sector in this situation in the first place with its slow start to the tightening cycle and steep pace of rate increases. At the same time, inflation has not yet fallen sufficiently to justify the scale of rate cuts the market is pricing in for later this year (75 basis points of cuts priced through the December FOMC meeting) or next year unless this banking turmoil hits hard and fast and shows signs of tanking the economy inside the next three months.  In reaction to last night’s market developments, the JPY benefitted the most as poor traders are suffering whiplash after having sold the yen on last week’s Bank of Japan meeting. In the wake of the ECB (more below), will be watching whether EURJPY also reversed back lower through perhaps 148.00, making the JPY reversal more or less a clean sweep.

USDJPY has now backed out nearly all of the sharp rally that came on the heels of the Bank of Japan meeting last week as US treasury yields and a massive downdraft in crude oil prices are offsetting the yen-negative implications of the Bank of Japan taking a very slow approach to reviewing policy over as much as the next eighteen months. Still, for the JPY to generally head higher still (And USDJPY and other JPY crosses lower), we will likely need for US treasury yields to head lower still and possibly for other central bank expectations to begin flattening out and turning lower as well, so the ECB today will have a role to play (not yet out as I am writing these observations on USDJPY. In the specific case of USDJPY, this reversal means traders will likely prefer trading for more downside as long as the 136.50-137.00 zone continues to cap the action, with further confirmation of a more significant downtrend developing if we can start adding some weak US data into the mix (tomorrow’s US jobs report, for example) and the price action pushes down through the 132.50 area, indicating a challenge of 130.00 eventually.

Source: Saxo Group

Early today, Norges Bank raised its deposit rate 25 basis points and guided for another hike in June. Short Norwegian rates were little changed on the day, but NOK put in a solid rally, likely on the indication that the Norges Bank gave that it is watching the currency, clearly suggesting that some appropriate level of concern on that front, which will mean further aggravated weakness could elicit a response. This may be the beginning of a far more two-way market in NOK and NOKSEK is perhaps a better way to start fading further NOK weakness from here than EURNOK. Oil is an important coincident indicator and note that is has poked at cycle lows after yesterday’s fresh downdraft.

ECB decision: The ECB decision is out just before posting this, with the announcement of a 25 basis point hike (as 90% or so expected) and guidance to “ensure rates are brought to sufficiently restrictive levels”. The euro is down slightly, which makes sense given it was bid to the top of the range in EURUSD ahead of the meeting and that we had to price out the minority view of a larger hike. Guidance for a cessation of reinvestments of the Asset Purchase Program as of this July was also in the statement. Short EU rates took this as marginally dovish, with the German 2-year knee-jerking several basis points lower. Watching that EURJPY for a possible bearish reversal if we close back below 148.00.

Table: FX Board of G10 and CNH trend evolution and strength.
The weak AUD may be on the soft Caixin Manufacturing survey out overnight and the weak tone across commodities, though CAD and NOK deserve the most negative focus on oil prices (though do note the Norges Bank discussion above – NOKSEK and EURNOK are at such remarkable extremes). Elsewhere, note the massive momentum shift in JPY, which will take some time to result in a positive broad trend reading because the moving averages need some time to respond. Curious if USD gets upper hand on the Euro and sterling if risk off deepens.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Note comments on specific pairs above, including AUDNZD lurching lower again. And after both FOMC and ECB last couple of days and then tomorrow’s US jobs data – a EURUSD status check on the Friday close important.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1400 – Canada Apr. Ivey PMI
  • 1705 – Canada Bank of Canada Governor Macklem to speak
  • 1815 – Canada Bank of Canada Governor Macklem to speak
  • 0130 – Australia RBA Statement on Monetary Policy
  • 0145 – China Apr. Caixin Services PMI

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 07

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
  • The rise of populism: Far-right parties will influence the future

    The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

    Read article
  • Investing in China: Navigating Q1 amid economic challenges

    Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

    Read article

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.