JAPAN: Relatively Muted Session for USDJPY, Election Volatility Ahead
Feb-06 18:17
- USDJPY has had a relatively muted session, trading in a contained 63 pip range on Friday. While we may have expected more of a rebound considering the substantial recovery for risk, the upcoming Japanese election is likely providing caution ahead of the weekend close.
- As a reminder, Japan holds a snap general election for the lower chamber of the National Diet, the House of Representatives, on Sunday, 8 February. The contest comes as part of an effort by PM Sanae Takaichi to reinforce her position as president of the governing LDP and take advantage of strong personal approval ratings to secure a majority in the lower House.
- Since winning the LDP presidency and taking over from Shigeru Ishiba, becoming Japan’s first female prime minister in October 2025, Takaichi has pursued a more robust stance in regional foreign policy and advocated for a “responsible proactive fiscal policy”. Markets will be watching the election closely for signs of whether Takaichi emerges emboldened or chastened from taking such a political gamble. Our full election preview is here: https://mni.marketnews.com/4qnSLRJ
- Given the sharp rally from 147.50 following the October election, markets will be braced for volatility at Monday’s open, as they assess both the fiscal and monetary policy impact. The Jan 14 high at 159.45 remains the key resistance point and bull trigger, an area likely to spark further FX jawboning and potential rate checks from the MoF. On the downside, a break of this week’s lows at 154.55 would signal a move back to key support at 152.10, the Jan 27 low.
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US DATA: Highest Supply Chain Pressures In Nearly 3 Years – NY Fed
Jan-07 18:10
Having shown little impact from US tariff policy earlier in 2025, the NY Fed’s GSCPI has increased to its highest since 2023 (with higher indicating more acute supply chain pressures). It’s hard to pin this increase on a certain variable although we note that separate regional Fed manufacturing surveys pointed to their highest value for six-month ahead delivery times expectations since 2022.
- The NY Fed’s GSCPI increased to +0.51 standard deviations above average in December after -0.17 in Nov, its first positive reading since July and the highest since Jan 2023.
- It’s still low by post-pandemic standards when it peaked at a huge 4.5 standard deviations above average in Dec 2021 and averaged 2.4 through Feb 2020 to Jan 2023, but is nevertheless a swift increase after little sign of reaction to tariffs under the second Trump administration.
- The relationship between this index and core goods ex used vehicles has broken down recently, with some solid ~0.3% M/M increases for the latter through Jun-Sep before a pullback to a surprisingly soft cumulative decline of -0.08% between Sep-Nov in last month’s highly unusual report.
- It’s hard to know the driver behind this quick increase in the index. It’s clearly not the Baltic Dry Index whilst its computation methodology covering various PMI releases makes it harder to estimate.
- We note that, whilst not included in the GSCPI, that an average of five regional Fed manufacturing surveys showed delivery time indexes sticking to recent ranges at 4.1 in Dec after 4.4 in Nov and 4.1 in Oct (diffusion index here) but six-month ahead expectations did increase 5pts to 8.4 for its highest since Mar 2022.
- One other technical factor to consider: "Due to the government shutdown, four datapoints are missing from the October and November revisions. These are the BLS Air Freight Indexes for Europe and Asia (inbound and outbound)."
EURUSD TECHS: Reversal Signal
Jan-07 18:00
- RES 4: 1.1919 High Sep 17 and a key M/T resistance
- RES 3: 1.1848 High Sep 18
- RES 2: 1.1808 High Dec 24 and the bull trigger
- RES 1: 1.1765 High Jan 2
- PRICE: 1.1684 @ 15:16 GMT Jan 7
- SUP 1: 1.1659 Low Jan 5 and key short-term support
- SUP 2: 1.1639 50.0% retracement of the Nov 5 - Dec 12 bull leg
- SUP 3: 1.1615 Low Dec 9
- SUP 4: 1.1598 61.8% retracement of the Nov 5 - Dec 12 bull leg
A strong recovery from Monday’s low print in EURUSD highlights a potential reversal - the price pattern on Jan 5 is a bullish long legged doji candle, also known as a dragonfly doji. It is a bullish reversal pattern and highlights a key short-term support at 1.1659, the Jan 5 low. A stronger recovery would open 1.1808, the Dec 24 high. Clearance of this resistance would confirm a resumption of the uptrend that started on Nov 5.
OPTIONS: Upside Plays Resume In Response To Positive Price Action
Jan-07 17:52
Wednesday's Europe rates/bond options flow included:
- RXG6 126.5/125.5/125.0p fly, sold at 4.5 in 2k
- ERM6 97.81/98.18RR, sold the call at 0.25 in 6k (ref 97.975, 18del)
- ERU6 97.9375/98.0625/98.1875c fly, bought for 1 in 12k
- ERU6 98.37/98.43/98.50/98.56c condor, bought for half in 20k
- ERZ6 98.00/98.1875/98.3125c ladder, bought for 0.5 in 4.5k
- SFIU6 97.00/96.75/96.25p fly, bought for 2.5 in 15k
- SFIU6 96.60/96.75/96.90 call fly paper paid 3.25 on 5K
- 0NM6 96.60^ paper paid up to 32.25 on ~9K after 31.5 was paid on 15K yesterday
