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The FX Trader: JPY and GBP weakness dominate
John J. Hardy
Global Head of Macro Strategy
Résumé: JPY weakness again as USDJPY tests above resistance despite official intervention and EURJPY even posts all-time highs. Elsewhere, sterling weakness and Swiss franc strength have GBPCHF eyeing historic levels.
What to know: quick bullets
- USDJPY posted new local highs above 154.50 on an extension of the JPY carry trade, brushing off a small dip inspired by Japan’s MoF head Katayama first rhetorical intervention. “seeing one-sided, rapid FX moves….can’t deny negative parts of weak yen getting clearer”. EURJPY and CHFJPY even posted all-time highs.
- US 4-week average weekly ADP numbers out yesterday for week ending Oct. 25, showing average of -11.25K over that time period. This doesn’t fit well with the in-line small positive monthly ADP payrolls we got last week – confusion and a burst of USD strength yesterday, but this was quickly erased (outside of USDJPY – which is driven by JPY weakness, not USD strength.
- Sterling was hit anew yesterday on weak labor market data, especially the surprise rise in the Unemployment Rate in September to 5.0%, with October payrolled employee change of -32k and a downward revision of September data to -32k from -10k originally adding to pressure.
- The Swiss franc rose on anticipation (according to media sources) that an agreement is afoot to with the Trump administration to normalize the tariff on imports to 15% from the extraordinary 39% level assessed by
- The Scandies on the comeback path, in part on solid bounce in risk appetite, and in NOK’s case, on the recent hot core inflation numbers and oil price stable to higher.
Chart focus: GBPCHF
The combination of Swiss franc strength on hopes for better terms of trade with the US and sterling weakness on weak labor market data and lower UK yields even ahead of the incoming UK Budget Statement on November 26 has GBPCHF testing what are essentially the all time lows outside of the brief GBP wipeout in late 2022 on PM Liz Truss’ mini-budget catastrophe (and associated BoE negligence). Is sterling at risk of a further meltdown on economic weakness and the currency-toxic combination of more BoE easing and a tight fiscal environment next year after Chancellor Reeves announces new taxes and spending restraint?
The rundown
- EURUSD – stuck in no-man’s-land, having nominally reversed the break below the former range low of 1.1542, but not finding momentum. A rally and close well above 1.1600 and even close to 1.1650 needed to reset the focus higher – until then neutral.
- JPY pairs – the JPY carry trade continues as long as volatility remains low it seems. The going will likely get far choppier and more vicious if we get a squeeze higher above 155.00 in USDJPY, with mounting resistance from Japanese officialdom if 160.00 nears again. When does the EU decry EURJPY approaching 180? It’s crazy.
- GBPUSD and EURGBP – sterling on tilt again after yesterday’s weak UK labor data. With sideways USD, GBPUSD still in downtrend, but resistance zone extends much higher to 1.3250-1.3325 if local resistance can’t hold. EURGBP more clear-cut. See GBPCHF chart above.
- AUDUSD – mean reversion has been the name of the gam here for months – has now established a strong support zone ahead of 0.6450 and looks like it wants to take a stab at 0.6600+ resistance for another go at 0.6700.
Others
- AUDNZD – the bull trend has been one of the most consistent trends of late and probably needs fresh fuel to extend, even if valuation levels have yet to catch up with the huge yield differentials that suggest something like 1.2000 is a fair price for the pair. Our trend indicator has been in uptrend for an incredible 94 days, during which time the trend has extended over 15 ATR’s from the time the trend was established.
- Scandies – the recent rally showed that EURSEK and EURNOKcan suddenly prove sensitive to risk sentiment, as has been the case historically, especially for EURSEK. But the very big 11.08+ area held for the third time in EURSEK – now we focus on the big range support just below 11.90, which opens for a test of 10.75 and possibly beyond. Similar setup in EURNOK, with 11.54 th ekey range support and 11.26 a massive level going back ages – might need some fireworks in crude oil / nat gas to get anything below 11.50 there.
Looking ahead
US data please? The US government shutdown will continue to reverberate as October data will either be delayed or even never released at all in some cases as some of it was simply not collected in October, according to White House economic advisor Hassett. The originally scheduled October CPI report for next Tuesday will inevitably face a delay, therefore. The first data we will get soon is the September Nonfarm payrolls report, which could come any day, while the schedule for other important data will likely be made available next week, according to an article I came across citing Goldman Sachs analysts.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
JPY and NZD weakness are the most pronounced, with sterling on tilt and nervy. Elsewhere, the USD strength is not convincing and has backed off over the last week - needs an impulsive rally to prove the point that it wants to rally further.
Table: NEW FX Board Trend Scoreboard for individual pairs.
EURCHF is tilting downward again and could go on to test lows of the cycle. Elsewhere, the new GBPJPY rend is tough to interpret when both GDP and JPY are weak, while EURSEK is still within the range even as it tilts lower – key levels noted for that pair above. EURNOK should follow EURSEK directionally if no drama in energy markets.
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The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..