JPY plays its classic role in risk-off market

The G-10 rundown

USD – The US dollar was challenged by the yen yesterday, as we have the difficult-to-navigate combination of weak equities and weak bond markets. Upcoming Treasury auctions tomorrow (three- and 10-year) and Thursday (30-year T-bond), a test for both Treasuries and the dollar.

EUR – EURUSD having a hard time getting full separation from 1.1500 – but not much to support if it does. A strong euro requires that the Italian budget situation is squared away, European yields are rising and risk appetite is reasonably stable.

JPY – playing its traditional role in correlating to the latest swings in risk appetite as market volatility heats up. We have the added factor here of the BoJ’s “cap” on the 10-year JGB yield and the market gaming the central bank’s intentions.

GBP – a hopeful stance on Brexit continues, but it feels so tenuous as there is still plenty of time for a headline or two to send the action back the other way.

CHF – the Swiss franc shows little safe haven behavior relative to the JPY – not sure if this is because the market’s hopeful Brexit stance is providing some offsetting pressure, but it’s remarkable to see EURCHF continuing to bob back higher despite obvious strains in core-Italy yield spreads.

AUD – not much bounce in the Aussie with all of the negative focus on China – resistance in AUDUSD into the 0.7100 area for a fresh go at the psychological 0.7000 area and then onto the sub-0.6900 lows potentially.

CAD – USDCAD bid up into 1.3000+ yesterday. The recent move has neutralised the downside risks, but a strong close well above 1.3000 needed to get the USD bulls interested here. A new storm in Gulf of Mexico is seeing production shutdowns and could be supporting at the margin.

NZD – the kiwi even weaker than the Aussie and AUDNZD making a bid into the 1.1000 area, which could set a bit more upside in motion, particularly on weak global risk appetite.

SEK – something not right in Sweden, where the plot on the Riksbank leading the ECB has been lost a bit and we wonder if the collapse in some of Sweden’s bank shares and concerns that Sweden’s housing bubble will become a risk sooner rather than later. Technically, nothing definitive just yet, but we would like EURSEK to stay below 10.50 to keep a downside focus and notch our conviction level on SEK strength potential a bit lower as long as risk appetite is wobbly. Swedish CPI up Thursday.

NOK – NOKSEK can’t make up its mind on the big 1.10 level here, but NOK absorbing a slightly negative August GDP print this morning fairly well and EURNOK bears should feel comfortable if oil prices hold above 80.00 and EURNOK below 9.60.