Article / 22 July 2016 at 7:24 GMT

FX Update: USDJPY shrugs off stimulus noise, EURUSD losing its pulse

Head of FX Strategy / Saxo Bank
  • Reports of huge Japan stimulus failed to generate further yen selling
  • Thursday's ECB meeting was a sleeper, shifts focus to September
  • China set its currency stronger again overnight

Dollar and yen notes
 Reports of mega-sized Japanese stimulus failed to spark 
much futher yen selling. Photo: iStock 

By John J Hardy

Fresh reports overnight of ever larger fiscal stimulus packages in Japan – this time it was Nikkei, with sources indicating the possibility of ¥30 trillion (some 6% of Japan’s GDP!) of stimulus – failed to generate further interest in selling the yen. Most JPY cross charts suggest a risk of consolidation back into the lower range after USDJPY nearly grazed the Ichimoku daily cloud yesterday (see the chart below). Risks point to a disappointment for next week’s Bank of Japan meeting. 

Yesterday's European Central Bank meeting matched the market’s general lack of anticipation for significant new signals. Draghi's press conference, however, did point to the potential for a significant overhaul of the ECB’s policy with the ECB’s new economic assessments at the September meeting. Some found Draghi’s comments on an NPL backstop interesting, though such measures would require political policy action and coordination that the ECB can’t provide alone. During the Q&A, Draghi seemed determined to avoid sending signals on how the ECB will approach further easing from here.

Today, the focus swings to the Eurozone flash PMIs for July, particularly those for the UK, where Markit hasn’t issued preliminary monthly figures before. Sterling looks resilient in the key GBPUSD and EURGBP pairs, though hasn’t yet achieved a breakout.

China set its currency stronger again overnight and the Chinese vice finance minister was out saying that there is no need for a CNY devaluation. If a halt of the devaluation unfolds here, this could impact commodity prices and hit even harder the commodity dollars, which have already suffered recently on more dovish guidance from the Reserve Bank of Australia and Reserve Bank of New Zealand. USDCAD upside resistance around 1.3150 could be in play today as well on Canadian data releases.


The USDJPY rally nearly touched the Ichimoku daily cloud, which drops sharply in coming sessions, but technicians are perhaps more interested in yesterday’s outside-day reversal and the potential for mean reversion deep back into the previous range as the Bank of Japan expectations for next week may prove overcooked – the Fibonacci retracements starting with the 38.2% will present technical targets if the action heads lower.
The G-10 rundown

USD – US dollar can’t seem to get much going at the moment – we’ve got a minor breakout in the dollar index above the 200-day moving average over the last week, but may need to see the FOMC statement next Wednesday before the rally can gain further conviction.

EUR – Euro failed to find any sustainable takeaways from yesterday’s ECB meeting and may trade passively relative to other currencies, though economic data today and from here will impact the market’s anticipation of ECB policy moves at the September meeting.

JPY – JPY crosses look ready for consolidation after fresh stimulus news fails to trigger a market reaction and as BoJ anticipation for next Friday may be overcooked.

GBP – Sterling has been resilient, but hasn’t punched through key levels to indicate it has more fight – watching today’s novel flash July Markit PMI’s for the market’s sentiment on sterling. These are expected to have fallen below 50, indicating a contraction in activity.

CHF – EURCHF stuck in the mud – more interest in CHF if we either see the Swiss National Bank caving on intervention or brining something new to the table or get back to USD strength on the anticipation of Fed rate hikes.

AUD – AUDUSD has reversed in bearish fashion, but we have yet to push on the supports that indicate a full-bore bear market and the current price is more or less the midpoint of the range since March. Next week’s key AUD risk is the Q2 CPI release on Wednesday.

CAD – USDCAD continues to coil in a shrinking triangle of consolidation and today offers breakout potential higher if the Canadian economic releases disappoint today and oil keeps following through lower (WTI crude has been underperforming).

NZD – consolidation quite shallow so far given the extent of recent NZD weakness as we watch whether kiwi weakness reasserts now or later.

SEK – EURSEK remains in the high part of the range and could spill higher if the theme switches to risk off and JPY strength.

NOK – Oil weakness weighing on NOK here and if we see consolidation lower in risk appetite, risk of further NOK downside – but range in EURNOK has been very persistent – 9.40/45 is resistance zone.

Upcoming Economic Calendar Highlights (all times GMT)
  • Euro Zone Flash Jul. PMI’s (0800) 
  • UK Jul. Flash Manufacturing/Services PMI (0830) 
  • Canada May Retail Sales (1230) 
  • Canada Jun. CPI (1230) 
  • US Jul. Preliminary Markit Manufacturing PMI (1345) 

— Edited by John Acher

John J Hardy is head of FX strategy at Saxo Bank


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