Yen surges, Japan Inc behind? Sterling soars, UK politics steadies

USD/DXY Tumbles, 2YR US Bond Yield Slumps 14 BPS, AUD Climbs

Summary

Japan’s Ministry of Finance (MOF) may have intervened in the FX market on Friday, buying Yen against the US Dollar near the 152 level, according to Reuters quoting a government official.

In early Asian trade, the USD/JPY was trading around 147.70 after it hit a high at 151.94 on Friday. On his visit to Australia, Japanese PM Fumio Kishida told reporters that the government “cannot tolerate excessively volatile moves driven by speculative trading.”

In the other currencies, the Bank of Thailand (Thai central bank) said over the weekend that it was closely monitoring a volatile, weak Baht, driven by Dollar strength. Thailand’s currency has depreciated by 13% against the US Dollar. USD/THB plummeted 1.5% to 36.60 (38.20 Friday).

The US Dollar slumped against the other Asian and EMFX. Against the Singapore Dollar, the Greenback (USD/SGD) closed 0.60% lower to 1.4150 (1.4240).

The British Pound (GBP/USD) rebounded 0.51% against the Greenback to 1.1300 (1.1215) as UK politics steadied following a week of turmoil. Boris Johnson pulled out of the Conservative leadership race paving the way for Richi Sunak to become Britain’s prime minister.

The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, tumbled 0.80% to 111.80 (112.90 Friday).

Broad-based US Dollar weakness boosted the Australian Dollar (AUD/USD) higher to 0.6380 from Friday’s 0.6280. The Kiwi (NZD/USD) soared by 1.26% to 0.5765 (0.5677).

The Euro (EUR/USD) rebounded 0.82% higher, settling at 0.9860 in late New York from Friday’s open at 0.9780. Against the Swiss Franc, the Greenback fell to 0.9980 from 1.0043.

Better-than-expected Canadian Retail Sales boosted the Loonie against the Greenback. The USD/CAD (Dollar-Canadian Dollar) slid to 1.3642 from 1.3775 yesterday.

Differentials between the US and global bond yields narrowed which weighed on the Greenback. The benchmark US 10-year Treasury rate dipped to 4.22% (4.23%). In contrast the UK 10-year Gilt treasury yield rose 15 basis points to 4.04% (3.89% Friday).

The two-year US bond yield tumbled 14 basis points to 4.47% from 4.61%.

Wall Street stocks rallied. The DOW climbed to 31,210 (30,325) while the S&P 500 was last at 3,760. from 3,667. The NASDAQ rose 0.54% to 11,392 (11,070 Friday).

Economic data released Friday saw New Zealand’s Trade Deficit climb to -NZD 1615 million, bigger than estimates at -NZD 1413 million.

Japan’s Trade Deficit narrowed to -JPY 2.01 trillion from a previous -JPY 2.34 trillion. Japan’s Annual Core Inflation Rate in September climbed to 3% from a previous 2.8%, matching median estimates.

UK September Retail Sales (m/m) fell to -1.4% against expectations of -0.5%. UK Public Sector Net Borrowing was higher at -GBP 19.2 billion from a previous -GBP 11.06 billion.

Canada’s August Retail Sales (m/m) soared to 0.7% from a previous -2.5%, higher than estimates of 0.2%. Core Retail Sales were up at 0.7%, beating expectations of 0.4%.

• USD/JPY – The Dollar plummeted against the Japanese Yen to finish 1.79% lower at 147.65 from Friday’s opening at 150.20. In extremely volatile trade the USD/JPY pair hit a high at 151.94 while the overnight low recorded was at 146.15 following comments from Japan Inc.

(Source: Finlogix.com)

• GBP/USD – Sterling found respite after UK politics steadied, closing at 1.1300 (1.1215 Friday). Following the resignation of Liz Truss, Boris Johnson withdrew from the Conservative leadership race paving the way for former finance minister Rishi Sunak to become British PM. Broad-based US Dollar weakness also boosted the British currency.

• AUD/USD – The Aussie extended its rally against the Greenback, soaring to a 0.6380 finish from 0.6280. Overnight high traded was at 0.6385. In early Sydney, the AUD/USD pair spiked to a high at 0.6414 before slumping back to 0.6370 where it currently stands. Me thinks some early Sydney banks triggered some stops. Just another manic Monday for the Battler!

• EUR/USD – The Euro finished 0.82% higher to 0.9860 (0.9778) buoyed by the overall weaker US Dollar. Overnight high traded for the shared currency was at 0.9869 while the overnight low recorded on Friday was at 0.9705. Like all the other FX pairs, trading was choppy.

On the lookout

The week ahead kicks off with a busy economic calendar scheduled today with the release of Global Flash Manufacturing and Services PMIs.

Australia released its S&P October Global Flash Manufacturing PMI which was higher than estimates at 52.8 (from 52.4) but lower than September’s 53.5.

Australia’s October Flash Services PMI dipped to 49 from a previous 50.6 and lower than median forecasts at 50.1 RBA Assistant Governor Christopher Kent is speaking currently at the CBA (Commonwealth Bank of Australia) Global Markets Conference in Sydney.

Japan follows next with its Jibun Bank October Flash Manufacturing PMI (f/c 50.5 from 50.8), Japanese Jibun Bank October Flash Services PMI (f/c 51.7 from a previous 52.2 – ACY Finlogix).

China follows with its September House Price Index (y/y f/c -1.5% from -1.3%), China September Unemployment Rate (f/c 5.2% from 5.3%), China September Fixed Asset Investment (y/y f/c 6% from 5.8%), China September Industrial Production (y/y f/c 4.5% from 4.2%), China September Retail Sales (y/y f/c 3.3% from 5.4%), China GDP Growth Rate (y/y f/c 3.4% from 0.4%) and finally China September  Balance of Trade (F/c USD 81 billion from previous USD 79.39 billion).

France kicks off Europe with its October Global Manufacturing PMI (f/c 47.1 from 47.7), French October Global Services PMI (f/c 51.5 from 52.9).

Germany follows with its October Flash Manufacturing PMI (f/c 47 from 47.8), German October Flash Services PMI (f/c 44.7 from 45).

The Eurozone releases its October Manufacturing PMI (f/c 47.8 from 48.4), Eurozone October Services PMI (f/c 48.2 from previous 48.8).

The UK follows next with its October Manufacturing PMI (48 from 48.4), UK October Flash Services PMI (f/c 49 from 50).

Canada starts off North America with its September Manufacturing PMI -1.1% from -2%).

The US rounds up today’s releases with its September Chicago Fed National Activity Index (f/c 0.12 from a previous 0), US October Flash Manufacturing PMI (f/c 51 from 52) and US October Flash Services PMI (f/c 49.2 from 49.3).

All economic forecasts today are courtesy of ACY Securities.

Trading perspective

We can expect more volatile FX trading conditions today and, in the weeks ahead.

The intervention from Japanese authorities (in this case the Ministry of Finance) in the USD/JPY pair drove the Greenback lower against its other rivals as well.

The Dollar Index (USD/DXY) tumbled 0.80% lower to 111.80.

The technical correction from its highs 114.40 earlier this month is well underway, and we may have more to go.

However, we would need US bond yields to fall further.

On Friday, global 10-year treasury rates rose while the US 10-year dipped.

There was a more dramatic fall in the US 2YR note, down 14 bps to 4.47% from 4.61% Friday. That’s huge.

FX traders will continue to monitor these bond markets. They will determine the next move for currencies.

• USD/JPY – The MOF intervention on Friday turned the Dollar around with effect in less liquid markets. The Greenback plummeted from 150.20 opening to a recorded low at 146.15 before soaring back to finish at 147.65 at the New York close. In Asian trade, the USD/JPY currently sits at 149.35, already a massive move back up. Expect more volatility ahead in this currency pair with Japan Inc watching closely. Immediate resistance lies at 149.60 and 150.10. A break above 150.10 could see us back to 151.80. On the downside look for immediate support at 148.40, 147.70 and 147.00. Expect more choppy trading with a probably range today of 146.80-150.40. Keep those tin helmets on, trade within the range.

• GBP/USD – Sterling has also had its own roller coaster ride due to last week’s UK political turmoil. This morning in Asia, the GBP/USD pair climbed to 1.1315 from Friday’s New York close at 1.1300. For today, look for immediate resistance at 1.1320 and 1.1370. Immediate support can be found at 1.1250, 1.1200 and 1.1150. Look for more choppy trade with a likely range today of 1.1200-1.1400. Prefer to sell rallies.

• AUD/USD – The Aussie Battler has held steady grinding its way higher against the broadly based weaker Greenback. This morning the AUD/USD pair eased to 0.6360 in Asia following Friday’s New York close at 0.6380. Overnight high traded on Friday was at 0.6385, which is today’s immediate resistance level. The next resistance is found at 0.6400 and 0.6430. On the downside immediate support lies at 0.6330 followed by 0.6290, 0.6260 and 0.6230. Expect a choppy one in this FX pair, likely range 0.6250-0.6420. Trade the range.

• EUR/USD – The shared currency also found support from broad-based US Dollar weakness, closing at 0.9860 from Friday’s 0.9778. In early Asia, the Euro slid to 0.9840. Immediate support today lies at 0.9820 followed by 0.9790 and 0.9760. On the topside, look for immediate resistance at 0.9880 and 0.9910. Likely trading range today for the Euro is 0.9750-0.9870. Prefer to sell rallies.

After another choppy session on Friday, get ready to rumble. More lies ahead. Happy days! Top Monday and trading all. Have a good week.