FX Update: Market volatility heating up with a big week ahead

Graphic: FX Board of G10 trends and momentum
JPY downside momentum flashing strongly read earlier today and still later in the day, though the intraday bounce in JPY has developed. Next week looks pivotal for determining whether spiking US yields continue higher and take the JPY down further (especially if the Bank of Japan insists on some manner of yield curve control, no matter how “mushy” the guidance is on actual levels, or if the JPY snaps back strongly on either a consolidation in the US treasury market, a steep risky asset sell-off and/or a Bank of Japan that doesn’t provide much guidance on long yields and expresses distaste for the speed of the recent JPY sell-off (last one probably too much to expect at these levels).

The G-10 and CNH rundown

USD – the US dollar and US yields not exactly moving in lock step, but if volatility picks up in the treasury market, the correlation likely tightens.

CNH – China allowing its currency to drift stronger against the basket recently, as it maintains a stable-and-strong yuan policy for now.

EUR – the euro backtracking sharply after the ECB delivered little and the EU looks very unattractive from a yield perspective, given the lack of more yield dynamism at the longer end of the curve. Yesterday emphasizes critical 1.2000 EURUSD level.

JPY – the yen practically spinning into the abyss recently – next week is pivotal for when and whether the currency can find support, with many irons in the fire (US yields, FOMC and BoJ policy review on Friday).

GBP – has sterling maxed out for now? The trade disruption to the Europe getting a bit more coverage now and they are rather profound – could be in for a period of consolidation versus USD  and EUR.

CHF – the Swiss franc in the same boat as the JPY directionally next week, in all likelihood – tracking direction in gold and inversely, the direction in US yields.

AUD – the Aussie quite resilient, but turned tail against the US dollar near 0.7800 area in AUDUSD on higher US yields. A new local low there would likely require a chunkier consolidation in pro-cyclical commodities like copper and iron ore.

CAD – the CAD belting a bit above its weight lately, and have a hard time believing that oil can advance forever without a bout of consolidation, and USDCAD price action getting rather “churny”

NZD – losing out to the AUD here as AUDNZD looking at that key 1.0800-50 zone again next week – a break could open for 1.1000+, particularly if commodity prices rises pick back up.

SEK – the krona’s day will come when EU is post vaccine and inflation picks up, for now would rather sit on hands and wait for a squeeze in EURSEK rather than doing anything now, save for perhaps maintaining NOKSEK longs.

NOK – interesting Norges Bank meeting up next week – first go near 10.00 rejected yesterday, perhaps in part on the AstraZeneca vaccine halt yesterday, but still like the longer term picture for NOK upside versus EUR and SEK.