FOREX: JPY Crosses - Pullback As We Approach NFP

The BBDXY range overnight was 1207.88 - 1212.14, Asia is currently trading around 1210. The USD, with a huge rejection of the 1220/1230 area on Friday, had a knee-jerk reaction lower to the outsized move in US rates as the market's view on growth and interest rate cuts is re-evaluated. The USD is consolidating just above its 1205 support, with very little reaction to either rates extending lower or Equities bouncing strongly. 

• Zerohedge on X: “Goldman: Seasonality Isn't Your Friend From Now Until Mid-September.”
• Otavio Costa on X: “ The yen just recorded its biggest one-day gain against the US dollar since December 2022, when the BoJ loosened its yield curve control and allowed 10-year yields to rise. This isn’t just a one-off move, in my view, it’s part of a broader fiscal survival response. The reality is that both the US dollar and interest rates must come down, in my opinion. This kind of fiscal and monetary adjustment isn’t optional — it’s the last viable path to avoid the US economy hitting a debt wall.”
• Craig Fuller on X: “The freight market has been sending flashing warning signs since mid February. But since the stock market has been rallying and government data has been wrong, no one has noticed the collapse in the Main Street economy.”
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
• Data/Events : Trade Balance, S&P Global PMI’s, ISM Services

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

• The PBOC issued CNY160.7bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY449.2bn.
• Net liquidity withdrawal CNY288.5bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.40%, from prior close of 1.45%.
• The China overnight interbank repo rate is at 1.30%, from the prior close of 1.34%.
• The China 7-day interbank repo rate is at 1.40%, from the prior close of 1.50%.

The USD/CNH fix printed at 7.1366, versus a Bloomberg market consensus of 7.1683

• The fix dropped sharply, given softer USD, while the fixing error also narrowed to - 317pips, from -351pips yesterday.  
• USD/CNH is through 7.1795 in morning trading after opening at 7.1842