FX Update: USD jolted higher on fitful safe haven bid. JPY risks mount. FX Update: USD jolted higher on fitful safe haven bid. JPY risks mount. FX Update: USD jolted higher on fitful safe haven bid. JPY risks mount.

FX Update: USD jolted higher on fitful safe haven bid. JPY risks mount.

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The US dollar has generally risen in recent months on the increasingly rapid pace of Fed tightening and perceived changes to that pace, so it was interesting yesterday to note that the US dollar rose purely as a function of weak risk sentiment in the wake of an ugly US Consumer Confidence number for June, as treasury yields and Fed expectations actually dropped modestly on the day. Elsewhere, the JPY is looking nervous again for testing the BoJ.

FX Trading focus: Hard to find any path to sustained US dollar weakening.

The equity market lurched suddenly into risk-off mode yesterday, just two days after one of the strongest rallies this year, showing an unsettling volatility of volatility. In Q1, the market rallied steeply in March, but rolled over starting on the second to last day of the quarter. This quarter, we found a bottom in sentiment right around the FOMC meeting and rallied steeply, only to roll over (so far) on the third to last day of the quarter. Are these portfolio rebalancing effects and are they already fading ahead of the new quarter? In any case, the jolt weaker in risk sentiment offered traditional safe-haven support for the US dollar, which has generally traded since late last year as a function of Fed tightening anticipation.

The USD won’t roll over durably, I argue in our upcoming Q3 outlook, until the Fed is seen as launching into a sustained easing again. So, although yesterday saw a modest apparent safe-haven bid into treasuries, we also had Fed officials out staying on message for further tightening (Cleveland Fed’s Mester: Fed is “just at the beginning” of raising rates) and we have a QT that is on autopilot to continue tightening financial conditions. One key data point that spooked the market yesterday was the huge drop in expectations component of the US Consumer Confidence reading for June, which fell to 66.4 from the revised 73.7 in May (revised down from 77.5!). This is the worst for that data point since 2013 and further inverts the Expectations-Present Situation spread. But we’re not really “there yet” in terms of clear recession unfolding until the Present Situation is moving clearly negative.

Technically, nothing has broken down among USD pairs – the EURUSD has merely shied away from the key 1.0600 resistance and traded back toward the pivotal 1.0500 area, the AUDUSD is having a look at a minor consolidation triangle support, but is still above the 0.6829 cycle low and GBPUSD finally halted its string of days of nearly unchanged daily closing levels at six and lurched lower yesterday, but traded nearly two figures above the cycle lows below 1.2000 this morning.

So let’s wait and see for the next round of data to test USD direction and whether it has potential higher again. The easiest upside path would be US data that proves less bad than expected or even distinctly inflationary on earnings next week (the Citi economic data surprise index for the US is about as negative as it ever has been over the last several years, if we remove the pandemic outbreak months from consideration), together with a fresh leg higher in crude oil, all of which supports the USD from the Fed policy outlook side and safe-haven angle, if risk deleveraging continues . Good data is likely bad for risk and good for the US dollar, while very very bad for the JPY, as discussed below.

A decent little retreat in US treasury yields, and yet here we are pegged near the highs in USDJPY – possibly ready for an aggravated ascent in coming days if the US data fails to confirm the “recession incoming!” scenario and US yields tick back up higher toward the 3.50% level for the US 10-year treasury yield benchmark, for example. While US yields have remained rangebound recently, we also have to consider the relative balance sheet situation of the two central banks as the BoJ has added to its balance sheet at a record pace recently to defend the yield-curve-control policy and has effectively lost control of its balance sheet in a rising yield environment, while the Fed is set to accelerate the shrinking of its balance sheet (QT) from here. We have a potentially explosive situation on our hands that could lead to a spike higher in USDJPY to well above 140 and possibly even 150, which could then lead to the Bank of Japan to finally capitulate and driving a 10% or greater boomerang move in the opposite direction. Beware volatility potential in both directions!

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
JPY fading to the weak side again – will BoJ be forced to capitulate before other central banks change direction/yields in general roll over? USD comeback nothing to write home about just yet – watching through next US data points as noted above. But sterling weakness is picking up again, while CHF is riding highest and EURCHF is pushing on parity.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Interesting to note the USDCNH poking back into an “uptrend”, although really there was just the one-off move from the base there and then a subsequent period of range-trading. Elsewhere, note more sterling pushing to negative in more place - yesterday on the close versus SEK and NOK.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1200 – Germany Flash Jun. CPI 
  • 1300 – Central Banks speakers at ECB Conference: Fed Chair Powell, BoE Governor Bailey, ECB President Lagarde 
  • 1500 – ECB President Lagarde to speak 
  • 1530 – US Fed’s Mester (voter) to speak 
  • 1705 – US Fed’s Bullard (voter) to speak 
  • 2350 – Japan May Industrial Production 
  • 0100 – New Zealand Jun. ANZ Business Survey 
  • 0130 – China Jun. Manufacturing and Non-manufacturing PMI 


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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/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 Markets 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

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 such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

The information or the products and services referred to on this website 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 intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.