FOREX: JPY Weaker as Ishiba Resignation Opens Up Uncertainty
- JPY remains weaker against all others early Monday. For much of last week, markets were speculating over the chances of Ishiba in a potential LDP vote to
bring forward a party leadership election, but the PM has gotten ahead of any further uncertainty by announcing his resignation. So why is JPY weaker? Thatcherite MP Sanae Takaichi is a front-runner among many opinion polls - and also ran against Ishiba in the last leadership race, triggering JPY vol. While politically conservative, she's made clear her preference for easy monetary policy and a bigger role for fiscal spending - reminiscent of the Abenomics policy set from 2012 - 2020. - EUR/JPY rallied to 173.91 overnight, but has stalled since. 173.97 remains the bull trigger here, clearance of which puts the rate at the best levels since last year. AUD, NZD extend their recent spell of strength, with NZD/USD just below Friday's highs of 0.5918. A rally through here and 0.5927 would break downtrendline resistance drawn off the early July highs.
- Firmer equity sentiment since the open has allowed the likes of AUD and NZD to outperform in G10 currency markets on Monday, capitalising on the bearish dollar sentiment following the softer-than-expected US employment report. As a result, AUDUSD (+0.41%) has traded within one pip of the Friday highs and the latest price action has helped the pair consolidate above short-term resistance of 0.6569, which was cleared last week. This places the market’s interest back on the 0.66 handle, of which we have only had one daily close above since the US election related volatility back in November 2024.
- Focus this week remains on the US inflation picture, with PPI and CPI prints due on Wednesday and Thursday respectively. With a September Fed rate cut now all but assured - a weaker price turnout this week could trigger further speculation over an easing step of over 25bps at next week's committee meeting.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
