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From the Floor: Yen soars as USD slides ahead of CPI – #SaxoStrats

  • USDJPY dips below 107.00 for first time since Nov. 2016
  • Quality of the break is in question given absence of risk contagion
  • US CPI will be the most watched macro figure today, testing market psychology 
  • Dollar-yen generally very sensitive to US economic developments
  • In South Africa, it's just a question of time before Zuma goes
  • Equities rebound is still not convincing
  • VIX spot remains elevated and VIX futures went up
  • The yield curve has been rising for the past few weeks
  • Investors would likely sell of treasuries if CPI unexpectedly high
By Clare MacCarthy

There's much to keep us occupied in financial markets today: a fresh surge by the Japanese yen; dollar wobbles ahead of a key US inflation release; GDP updates from across Europe and another push in South Africa to unseat the country's president, Jacob Zuma.

First, to the dollar slide and the yen advance which had USDJPY dipping below 1107.00 for the first time since November 2016: "The quality of the USDJPY break is in question as it's not accompanied by increased risk contagion," notes John J Hardy, Saxo's head of FX strategy. But the cross, he says, is "generally sensitive to US economic developments" so would likely be very reactive to any surprises in the US CPI news later today.

A response would also be likely in US treasuries, says Althea Spinozzi, from Saxo's bond trading desk. "If the CPI is stronger than expected then investors would sell off as they would then expect an acceleration in the pace of rate kikes," she says.

In equities, meanwhile, gains have been notched on several leading bourses but the rebound "is still not convincing" says Peter Garnry, Saxo's head of equity strategy. "The VIX spot remains elevated and VIX futures went up while USDJPY also remains at critical levels. This rebound is still not firm, so stay alert. Increasing defensive exposure is prudent," he concludes.

USDJPY new 15-month low, despite lack of further risk aversion…
 Source: Saxo Bank


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