FOREX: DXY Extends Reversal Lower, USDJPY Approaching 152.10 Support
Feb-11 10:15
- Although much of the focus has been on the yen over the past two sessions, the Ice USD index has been gradually edging lower, approaching 96.50 as we await the key US employment figures later today. It’s been well noted that the DXY’s recovery to the December lows around the 98.00 mark appears to have provided an attractive entry point for those looking to reengage shorts.
- Yesterday’s retail sales data has certainly added to the renewed greenback pessimism, alongside the dovish repricing across the US curve. This dynamic provides an important backdrop for today’s payrolls report, as weak figures may bolster bets on imminent easing from the Fed. The data will need to be assessed holistically rather than focusing on any single number, although the unemployment rate should offer the cleanest single take.
- With Japan out for a national holiday today, the JGB stabilisation theme has allowed the yen to extend its post-election upswing, with the US data assisting the squeeze. USDJPY broke swiftly through the 100-day MA on Tuesday, and spot has traded down to 152.80 overnight, narrowing the gap substantially to 152.10 support.
- The sharp downswing for GBPJPY has seen spot extend below the 50-day EMA to fresh 2026 lows. The average has been a notable pivot given the fact we have not posted a daily close below it since October, and it acted as perfect support on Jan 26. Next support is seen at 206.78, the Dec 16 low.
- Elsewhere, AUDUSD broke above the 0.71 handle overnight after RBA's Hauser said the country's inflation rate is too high and the RBA will take all necessary measures to bring it under control. 0.7128 highs bring us closer to the 2023 peak, at 0.7158.
- MBA Mortgage Applications are scheduled ahead of payrolls. Fed's Schmid, Bowman and Hammack will appear while ECB hawk Schnabel is also scheduled.
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SONIA OPTIONS: SFIM6 96.65/96.55/96.50 Put Ladder Lifted
Jan-12 10:12
SFIM6 96.65/96.55/96.50 put ladder paper paid 2.25 on 7.5K.
ECB: Muller Pushes Back On Near Term Rate Changes In Either Direction
Jan-12 10:05
Comments crossing from ECB's Muller via Bloomberg, generally considered one of the more hawkish members of the Governing Council:
- "*ECB'S MULLER: NO REASON TO REDUCE RATES FURTHER IN NEAR TERM"
- "*ECB'S MULLER: EURIBOR RATES WILL BE PRETTY STABLE IN NEEAR TERM"
- "*MULLER: HIGHER ECB RATES NOT A QUESTION OF NEXT MONTHS OR QRTRS"
- "*MULLER: PERHAPS A FEW YEARS AHEAD ECB RATES COULD BE HIGHER"
The pushback against cuts is not surprising, and comments around steady rates/hikes is in line with fellow hawk Schnabel. There's been no discernible reaction a the back-end of the Euribor curve to these headlines.
A reminder that in December, EUR rates moved to quickly increase the implied probability of ECB rate hikes in 2027/2028. Some of that hawkish repricing has faded in the weeks since though, with the first full 25bp Euribor--implied hike now priced in September 2027 (versus June 2027 prior).
JPY: Japanese Yen Underperforms Amid Broad Greenback Weakness
Jan-12 10:01
- Overall, general dollar weakness has been evident as news was received surrounding the Fed’s DoJ subpoenas in reference to building renovations. This has reignited independence risks and a put the ‘sell-America’ trade back on the short-term agenda. Despite this, the Japanese yen has failed to receive a meaningful boost to start the week, with a brief flurry down to 157.52 well supported during APAC hours.
- Domestic factors are certainly playing their part here, as Friday’s reports of PM Takaichi dissolving the Lower House and associated speculation that she could call for a snap election continues to rise. The Yomiuri newspaper has reported that Feb. 8 or Feb. 15 are likely dates for this to occur.
- Technically, last week’s breach of 157.89 for USDJPY was a meaningful development, confirming a resumption of the medium-term uptrend. The next significant topside target will be 158.87, last year’s high and a key resistance. Support to watch lies much lower down at 155.35, the 50-day EMA.
- Naturally, the latest leg lower for the yen is prompting renewed speculation for potential intervention from the MOF, and sure enough, officials have been hardening their language in recent weeks. However, it is worth noting that USDJPY was around 2.5% higher than current levels when intervention commenced in 2024.
- Additionally, ING point out that based on those last interventions, they still suspect there may be a preference to wait for a USD-negative market event (previously a cool US CPI report) to intervene.
