16 June 2016 at 14:24 GMT
- JPY surges overnight, yen crosses at new lows
- Gold posts gains on weak risk sentiment
- Risk-aversion curtails post-FOMC AUD rally
Number one with a bullet: The Japanese yen is far and away
the strongest currency on the day. Photo: iStock
By John J Hardy
Key developments in FX today
- The Japanese yen powered sharply higher overnight, pushing JPY crosses to new lows for the cycle by late in the day today across the G10.
- The USD's fortunes switched from weakness late yesterday on the perceived dovishness of the Fed (relative to expectations).
- Interesting today to note the weakness in sterling was less pronounced after commodity currencies tried to rally overnight versus the US dollar, but all were markedly weaker by later today versus a resurgent USD as risk aversion wore them down and in USDCAD case, as oil markets also corrected lower.
- Precious metals ignored the general USD comeback and thrived, especially in the case of gold (on the weak risk appetite).
The market was quick to change its mind on EURUSD as the Federal Open Market Committee guidance was deemed irrelevant relative to the intense uncertainty and ramifications for the euro in the event of a Brexit at next week's UK referendum.
The 1.1100 level is a possible trigger for a run to 1.0800, which should be handily attainable in the event of a Leave vote.
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Source: Saxo Bank
Interesting to note the weak risk appetite and Brexit fears are showing considerable contagion into euro pairs today, with EURGBP posting new highs but then reversing hard later in the session.
Could this pair trade lower in a Brexit scenario?
Note with the combined JPY strength and EUR weakness that this was one of the biggest movers on the day and was even challenging below the big 61.8% Fibo of the entire rally sequence since the 2012 lows.
Interesting to note with the CHF gaining a safe-haven bid that the USD outperformed today even after yesterday's FOMC meeting. This may have the bulls scrambling for new longs, though they'll have to contend with whether CHF or USD is a better safe haven in the event of a Brexit scenario.
AUDUSD tried to rally overnight on the FOMC-inspired USD selling, but risk aversion quickly turned the tide and the reversal will have the bears looking for a move through the 0.7275 area downside pivot to confirm a test of the recent lows below 0.7150 and beyond.
The string of rally days was extended yet again as risk aversion and Brexit fears easily trumped USD strength to take gold to new highs for the cycle well above $1,300/oz today. We have the makings of a broadening top formation, but only if the risk aversion eases dramatically and soon, otherwise this is a standard break and the next zone of interest is up toward $1,400/oz.
Source: Saxo Bank
— Edited by Michael McKenna