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The Daily Fix: Big moves in the JPY, but few know why

Chris Weston
Head of Research
20 Feb 2020
It's all on the JPY bear train today, although the exact reasoning behind the sizeable moves lower against all major currencies is still very much the subject of intense debate.
Major currencies chart
Source: Bloomberg

Our flow, predictably, has been centred on USDJPY, with EURUSD taking a breather. That said, its NOKJPY (+2%) that has had the bigger percentage move, helped by a solid 2.3% rise in Brent crude. CADJPY longs are also working well and also feeding off the crude move and given a second wind after a somewhat hotter Canadian CPI print too. With Canadian rates finding sellers, we see the prospect of a cut in the April BoC meeting reduced by 8ppt. CADJPY now eyes the January highs of 84.57 and a daily/weekly close through here would incentivise increasing long positions.

Aussie jobs an event risk for AUD traders

AUDJPY has pushed through 74.00, but taking long positions in this cross is a tougher proposition with Aussie jobs due at 11:30 AEDT (consensus 10,000, unemployment to 5.2%) and when the RBA has the labour market as their central focus, then it’s ours too. The trend in Aussie jobs is solid, with the 12-month average net job gain at 20,900, but if the unemployment rate does tick up to 5.3%, which would be a surprise (the consensus is for 5.2%), then I think the AUD is good for 40-50pips of downside.

We have 5bp and 13.3bp of cuts priced for the RBA’s April and June meetings respectively, so poor jobs numbers will resonate with rates traders and the AUD will follow. Good jobs numbers on the other hand, should only see modest repricing of rates as traders focus less on the domestic picture and more on the impact from the coronavirus on global economics.

Why own JPY?

There hasn’t been a sudden jolt to the JPY, and the moves have been sustained and relentless all through European and US trade. Granted, we have seen reports that China is considering measures to help its airline industry which has helped sentiment. While on the data side, housing starts, building permits and PPI were hotter than expected, while the FOMC minutes really offered nothing new of note. But the tape on the session reeks of portfolio flows and repositioning, and someone caught dramatically offside and one suspects Japanese pension funds have been working some punchy offers through their counterparties all night.

It always feels hard to be long USDJPY, but the setup on USDJPY on the daily looks truly bullish, with many pointing to the break of the 2015 downtrend – whether it can close the week through here is another thing though. However, at this snapshot in time, the move argues for a near-term test of 112.20/42, where a weekly close through, what is effectively the Jan/Aug double-bottom neckline, would argue for a longer-term technical target of 120.

USDJPY daily chart

We are seeing better selling creep into USDJPY as I type, and while this is hypothetical, maybe the market senses the order is done. That said, traders have taken note and simply don’t see these sort of moves across FX markets without a clear reason - so aside from the pure TA and price action traders who really don’t care, for many who ask the why, in this case, there is no smoking gun.

Granted, the S&P500 is gaining 0.5% and perhaps the JPY is finally taking sentiment from the liquidity inspired move in equities, where we watch for the open of the Nikkei 225 this morning and one suspects it will be a highly positive affair, as it will in China and HK too. There has been no move in either US nominal or real (inflation-adjusted) Treasury’s worthy of note, despite the better US data and the VIX remains anchored to 14%. Gold (XAUUSD) has pushed higher and is threatening to convincingly break the 8 January high of 1611, although there seems to be some wood to chop here.

Some have suggested that if you want a safe-haven currency in the portfolio you have USDs now, over JPY. This makes sense to an extent with the view that you want your capital as far away from ground-zero (China) as possible, especially when we see the February economic statistics from China, Taiwan, Singapore and Thailand etc roll in over the next two weeks. Anyhow, the US economy looks in better shape on a relative basis even if the inverted yield curve doesn’t suggest that.

We also know the EUR has put its head firmly above the precipice and commanded the market respect to become the default funder for carry traders, and the JPY has lost that investment case too. We can go on, but there has been some technical and psychological damage to the JPY today, and the idea of ‘where else do I go but the US’ has been reinforced and that makes life just that bit more interesting, because at some stage soon the USD move is going to bite.

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