13 February 2018 at 8:29 GMT
- An important morning in forex with USDJPY below 108
- Volatility is picking up so keep an eye on the yen crosses
- Risk of rapidly expanding volatility across the FX space
- Many hedgers caught off guard, thought BoJ would keep JPY weak
- Nikkei again tested the critical 21,000 level
- VIX remains above the 22 level, at 26 now
By Clare MacCarthy
Some sense of calm returned to Asian equity markets overnight and most indices tracked their Wall Street counterparts higher in early trade, though the optimism began fading as the session progressed. However, the real drama this session lies in FX, particularly USDJPY where a critical level is under attack:
"We're having an important morning here in forex with USDJPY below 108. Basically we've unleashed the beast in the FX space and we're seeing a significant meltdown in yen crosses. Volatility is picking up so keep an eye on the yen crosses and particularly dollar-yen as there's a risk of rapidly expanding volatility across the FX space if this break continues. I think a lot of people have been caught off guard, hedgers, Japanese corporates for example, have been a bit lazy think that the Bank of Japan's Kuroda would have their back and keep the yen weak," says John J Hardy, Saxo's head of FX strategy.
Economic releases such as UK inflation numbers due today are playing second fiddle to the yen's sudden appreciation and the likelihood of further FX volatility. And although the South African rand has been cheered by news that the country's president Jacob Zuma looks like being forced to resign, the overall nervous backdrop means that any ZAR gains may be transient.
Elsewhere, in equities, the Nikkei again tested the critical 21,000 level; the VIX remains above the 22 level, at 26 now, so there's still room for nervousness in the market.
Source: Saxo Bank