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USDJPY collapse spooks the markets ahead of US nonfarms

Good morning

A quick glance at the currency levels today and you’d think not a lot has changed, USD a touch stronger against GBP and EUR, Yen a little stronger. But that doesn’t tell the full story. USDJPY, which as we know had pushed lower from 147.35 to 145.15 after some hawkish rate talk from BoJs Ueda, continued to trade lower through the afternoon before collapsing to 141.70 in pretty much the blink of an eye. It shifted higher again soon after, and has worked its way back up to 144.15 as I type.

An interesting move for sure, I’ve not yet seen a satisfactory reason behind it although I would not be at all surprised if it was stopping out a large long USDJPY position. This talk of a possible move away from negative rates by Japan is gaining traction, market seems to be pricing in an April move. Japanese equities don’t like it, the Nikkei closed down 1.7% overnight. There will be more volatility to come for Yen that’s for sure ahead of the next BoJ meeting on 18th Dec. It has already moved from 151.90 or so in mid-Nov to that 141.70 low, I’ll be looking to see if I can find a relatively cheap downside option play targeting a move below 140.00 just in case.

I’d mentioned interest in upside AUDUSD earlier in the week, for a while it looked like a wrong call but it held in the low-0.65s and has now broken back above 0.6600. Not a major move but do bear in mind this is against a stronger USD, while other majors have lost ground. To emphasise the point, GBPAUD is now just a touch above 1.9000, some 250 points off yesterdays levels, and AUDNZD is also higher at 1.0745, from the mid-1.06s.

GBPUSD is currently 1.2565, just 20 pips or so off yesterdays lows. A KPMG report on UK employment painted quite a dismal picture overnight, showing companies are limiting the hiring of permanent staff, which highlights problems in the UK economy. Our political situation remains laughable which, while not at Truss/Kwarteng levels, hardly adds any confidence, with talks of growing unhappiness amid Tory party members. Sunak is likely to face some sort of rebellion in the coming weeks.

GBP lost a little of its ercent gains against EUR, GBPEUR now 1.1650 having been almost 1.1700 a day or two ago. Not a dramatic move but this 1.1650 area has supported for a week or so, a break lower could open up a move back into the 1.15’s.

US nonfarm payrolls will be the main event today. A headline around +200k is expected, with the unemployment rate holding at 3.9% after a surprise tick higher last month. A stronger headline and a move lower in the unemployment rate could give USD a bit of a push into the end of the week, although this could be tempered by a possible reduction in the average hourly earnings to 4%.

That’s all from me this week, as you know next week brings rate announcements from Fed, ECB and BoE but for now it is BoJ who are providing most of the volatility. The weather over the weekend looks like it’ll just be heavy rain so I’m not planning on doing too much outside. The next couple of weeks look colder and drier, I’ll take that over heavy rain for sure.

Have a great weekend when it comes….

- 09.30 UK consumer inflation expectations

- 13.30 US nonfarm payrolls

- 15.00 US Michigan sentiment survey

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