FX Update: Is the sixth time the charm for 105.00 USDJPY break? FX Update: Is the sixth time the charm for 105.00 USDJPY break? FX Update: Is the sixth time the charm for 105.00 USDJPY break?

FX Update: Is the sixth time the charm for 105.00 USDJPY break?

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The FOMC meeting sparked a sell-the-fact reaction in equities to the well-flagged dovish Fed shift to an Average Inflation Targeting regime and a choppy reaction in the US dollar after an initial rally. Elsewhere, the Japanese yen has rallied consistently and broadly and has taken USDJPY south of the big 105 for the sixth time since early 2018. Will it finally hold lower?

Trading focus:

Post-FOMC, sorting through JPY strength and whether USD is also strong or merely choppy

The huge 105.00 level in USDJPY – challenged on five prior occasions without really falling for more than a session or two since early 2018, has fallen once again this morning as the USD reaction to FOMC has waxed hot then cold.

The JPY resurgence in evidence yesterday already before the FOMC meeting accelerated as USDJPY took a look below 105, although the move yesterday and overnight was more impressive in other JPY crosses, including the classic risk barometer AUDJPY and EURJPY, where we saw a break below the big 124.50 area. This morning, the move has petered out a bit in a broad sense as the US dollar chops all over the place, confusing the initial USD rally that unfolded late yesterday and overnight as risk sentiment headed south. There was nothing in the FOMC to specifically trigger a market temper tantrum as the sell-off may be a recognition that the Fed’s new policy shift is largely irrelevant here. More concerning is the slowing US Retail Sales data in August on top of a downward revision for July and the ongoing lack of new stimulus, although it looks like Trump is ready to cut a deal with the opposition to get the money flowing into the hands of voters before the election.

As for the FOMC meeting itself, there was nothing on the table that was not already flagged with the Fed’s new “flexible” average inflation targeting regime. It is nominally dovish, but is really only interesting down the road in the event if inflation picks up and the Fed’s resolve and reactivity to data is only tested once inflation starts to shoot north of the 2.0% level for the PCE core, something that only happened in briefly clusters of a few months in early 2012 and for several months in 2018, both times clearly a lagged result of a surge in oil prices and a related decline in the greenback’s fortunes. Inevitably, the Fed will trip over this forward guidance whether a) because inflation fails to materialize and isn’t really within their ability to create in the first place as that power only resides with bank credit creation and fiscal stimulus or b) inflation starts to rise uncomfortably above 2.0% even as employment fails to improve to pre-COVID-19 level. Basically, the AIT regime is the medicine for the past cycle – when in retrospect the Fed feels it could have hiked at a far slower trajectory without creating uncomfortably high inflation. The future cycle may not look so similar. What is the Fed policy rate in a world of 3% inflation, 0% real GDP growth and perhaps a 6% unemployment rate?

Chart: USDJPY weekly
USDJPY has slipped below 105.00 now for the sixth time since early 2018. The pair has only closed below that level on a daily basis a very few times in prior episodes – even including during the COVID-19 panic back in March when intraday price action saw the pair trading nearly to 101 before rebounding sharply. The ability for the JPY to linger at these higher levels could point to a move to the next major support area into 100.00. The Bank of Japan met last night with few headlines and no change of policy as Governor Kuroda pledged to work with new Japanese Prime Minister Suga.

Source: Saxo Group

The G-10 rundown

USD – status please? We have seen some confusing price action since late yesterday, when the USD rallied in its oft-played role as the flipside of risk appetite, but the status of that move was thrown into doubt in early European hours. Watching the weekly close as well as the relative strength of the greenback versus the JPY for a sense of direction.

EUR – EURUSD went over the edge below 1.1750 overnight only to snap back above 1.1800 in the European morning, a chop-fest making life miserable for traders. That 1.1750-1.1700 zone is critical for whether we finally get a consolidation to the more notable trend support toward 1.1500.

JPY – the JPY playing catchup with other USD pairs as USDJPY sniffs out the territory below 105.00 – a level the pair has not closed below on a weekly close since early 2018 (and even then it was quickly rejected.)

GBP – Interesting test for sterling today over the BoE as it sifts through its policy options – a lean for more QE sooner rather than later might not prove so damaging, but talking up negative rates policy potential is a different matter. Meanwhile, the course of the Brexit Bill and then negotiations with the EU will prove the bigger key between now and mid-October. GBP has rallied to pivotal levels today in EURGBP (0.9100 area) and GBPUSD (1.3000).

CHF – the franc grinding slightly higher on safe haven seeking and in sympathy with the JPY, and now EURCHF is having a look at its range lows since late July ahead of 1.0700.

AUD – a surprising resilience here – yes the jobs data was positive, but was heavily affected by self-employment gains and part-time work. Meanwhile a bit surprising to see the Aussie so readily bouncing back despite very weak iron ore prices over the last few sessions and cratering risk sentiment. 0.7225-0.7200 the key trigger area for taking AUDUSD out of choppy rising channel if the bears are to prevail.

CAD – our commodities strategist Ole Hansen concerned that oil comeback is challenged by fundamental situation, but USDCAD turned tail back lower after trying toward local resistance into 1.3250+. The 1.3300-50 zone critical for a larger CAD consolidation to the weak side.

SEK – risk sentiment improvement this morning in Europe is seeing EURSEK reject attempt at resistance thus far, but too soon to call an end to upside risks.

NOK – EURNOK caught between weak risk sentiment (NOK negative) and the strong two-day rally in oil (NOK positive).

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – UK Bank of England Rate Decision
  • 1230 – Canada ADP Payroll Data
  • 1230 – US Weekly Initial Jobless Claims and Continuing Claims
  • 1230 – US Aug. Housing Starts and Building Permits
  • 1230 – US Sep. Philadelphia Fed Business Outlook
  • 1430 – US Weekly Natural Gas Storage
  • 2330 – Japan Aug. National CPI
  • No time given – South Africa SARB Rate Announcement

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 (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. 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

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.