Is the yen Kraken about to be released? Is the yen Kraken about to be released? Is the yen Kraken about to be released?

Is the yen Kraken about to be released?

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  Risk appetite is suffering across the board as the Chinese equity market rally goes in full reverse and the market can’t cobble together a positive narrative elsewhere. Signs of safe-haven seeking in treasuries on the latest equity market slide could be a sign that the Japanese yen is set for a brutal rally.

Chinese equities turned tail and retraced the majority of Monday’s huge gains. Elsewhere, the mood never turned positive as Wall Street suffered a weak session to start the week and the key S&P 500 closed back below its 200-day moving average, an indicator that has been a focus since early this year. The S&P 500 futures are down an additional percent and more overnight on the vicious additional selling taking place out in Asia. The Japanese Topix index is at a critical level as well, staring down the range lows since 2017 as the JPY rallies here.

As we note below in the G10 rundown, the most interesting development for FX, besides China finally revealing its intentions for the RMB, would be whether government bonds are finally finding a safe-haven bid, which could see the JPY rapidly taking the crown as the refuge of choice.

The attempt to build a positive narrative on Italy budget developments and Moody’s not downgrading BTPs all the way to junk is fading fast as the budget showdown continues and shows no signs of letting up. As well, a revolt from Tories is weakening the sense that UK Prime Minister May has a sufficient mandate in Brexit negotiations. EURGBP has poked back above its 200-day moving average and GBPUSD is now within reaching distance of range lows towards 1.2920.

Today we have a number of central bank speakers out all day and we have a flurry of central bank meetings all week, but it feels like this market is battening down the hatches and beginning to trade in the usual risk on/risk off fashion that is likely to persist until the move exhausts itself or other themes can emerge. Speaking of emerging, EM remains stunningly serene at the moment, given the backdrop. Is this due to the false USDCNY stasis and are EM traders insufficiently prepared if CNY volatility spikes?


USDJPY volatility could be set to spike if safe-haven seeking extends here with equities down and bonds up. Technically, several JPY crosses are looking heavy and the big USDJPY starts to look the same if we poke back below the recent lows, which would already take the pair down through the multi-touch trendline stretching back to earlier this year.

USDJPY. Source: Saxo Bank

The G-10 rundown

USD – call me a conspiracy theorist, but there is something fishy about the price action in the early European hours in USD pairs, with the USD suddenly lower after late Asia rallies. Don’t know what to do with it – but it could be USDCNY “ceiling” linked.

EUR – the Italy situation now looks very unresolved again after the big BTP rally to start the week. Today will likely see the EU asking Italy to change its budget proposal, which the populists are likely to reject and if neither side will back down, it will be up to the market to decide. Italy spreads are the driver here together with general animal spirits. Watching the 1.1435 area low in EURUSD for further downside risk.

JPY – the JPY could quickly take over the high-beta-to-risk appetite crown if we get an extension of the current combo of strong bonds and weak stocks. Given the massive consensus trade and heavy position in short US treasuries, a further equity sell-off that sees safe haven seeking in US treasuries and moves the US 10-year back below 3.1% or the 30-year back below 3.25% could see a short squeeze that really starts to feed the JPY volatility beast.

GBP – sterling is in a funk again on the latest twists in the Tory rebellion over the idea of a long transition period. But can traders really sustain anything in either direction until we get close to crunch time for Brexit?

CHF – fresh existential risk linked to Italian budget and tumbling BTPs this morning feeding a fresh EURCHF sell-off after the rejection of the attempt to retake 1.1500. Support may come in quickly as long as we don’t transition to new wide Italy-core yield spreads.

AUD – is bouncing from overnight lows, which were not far from the multi-year lows posted earlier this month below 0.7050. Probably need a sense that CNY is  going the one way or the other before volatility picks up.

CAD – waiting for Bank of Canada tomorrow and how its spins guidance after the expected hike that will take the rate to a respectable 1.75%. Neither oil nor risk appetite are offering CAD any support here.

NZD – AUDNZD is in a nominal downtrend as long as we remain below 1.0825-50, but we wonder if there is much downside potential, given yield spreads, long-term NZD-overvaluation and the pair trading (mostly) in a 1.03-1.1300 range for five years now.

SEK – Riksbank tomorrow needs to provide the market with clear intent that a December rate hike is on its way to support SEK. Meanwhile, weak risk appetite and EU existential risks are headwinds for the preferred SEK appreciation.

NOK – assuming little prospect that Norges Bank on Thursday offers NOK any positive spin, the latest weak oil prices and sense that the Riksbank is set to hike rates could continue to drive NOKSEK lower within the range and possibly to the 200-day moving average now around 1.0730.

Upcoming Economic Calendar Highlights (all times GMT)

1030 – UK BoE’s Haldane to speak
1330 – US Fed’s Kashkari (non-voter) to speak
1400 – US Oct. Richmond Fed
1400 – Eurozone Oct. Consumer Confidence


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 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 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 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 is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited 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

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

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

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.