Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 10 January 2018 at 16:26 GMT

FX Board: JPY was strong before China story stirred USD pot

Head of FX Strategy / Saxo Bank
People's Bank of China
 The People's Bank of China. Photo: Shutterstock

By John J Hardy

Key developments in FX today:

  • Broad JPY strength has been the focus in recent sessions, but then Bloomberg really stirred the pot today with a story suggesting Chinese officials are losing appetite for US treasuries based on valuation against other assets and possibly linked to US trade policy. This saw the USD sharply weaker across the board, though this move has faded significantly later in today's trading, so the jury is out on whether the reaction will stick.

  • The JPY move higher across the board on more "tangible" developments pointing to a shift in Bank of Japan policy stance to the less dovish side was more notable and persisted today.


EURUSD bulled back above 1.2000 today on the news about China's possible lack of interest in US treasuries, but a decent chunk of the move was fading as of this writing. If the pair closes below the day's low today or tomorrow, the tactical risk remains modestly bearish, with a close below 1.1850/60 even more so as this could open up a full capitulation. A follow-up from official sources on the story that prompted today's rally and a close strongly back above 1.2000, on the other hand, would point higher again for the pair.
Source: Saxo Bank

USDCHF looked especially bearish intraday on the reaction to the China "news", but we need to suspend judgment for a day or two or until we get some kind of follow-up from official sources. The 0.9850 level remains the pivot if upside is to come back into view.
Source: Saxo Bank

USDJPY is a different animal from most other USD pairs as it was driven far more by a strengthening JPY recently. The break lower establishes more bearish momentum, and that picks up further with a break below the notable prior lows around 110.85.
Source: Saxo Bank


EURJPY shows the degree to which the JPY has taken charge across the board. The first bearish development was the high momentum descent back through the old 134.50 range high, and a full reversal of the entire old range into 131.50 would mark an even more significant structural cap to the action.
Source: Saxo Bank

— Edited by John Acher

John J Hardy is head of FX strategy at Saxo Bank
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FX Board for Wednesday, January 10, 2018


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