FX Update: JPY and CHF stretch in opposite directions amidst quiet elsewhere.

FX Trading focus: JPY and CHF stretch in opposite directions. Quarter-end and next week’s calendar the next test for whether volatility will revive this summer.

While CHF and JPY moves are remarkable here, USD traders are grasping at straws for the next significant event risk to spark a new move as the main driver of volatility over the last few months, global bonds, have shifted into range trading territory. More thoughts on that below. For now, the focus within G10 is on the renewed pressure on the Japanese yen, even as the chief coincident indicator for JPY, long US Treasury yields, are fairly quiet, if rising again within the range. Some JPY crosses are moving close to or beyond recent ranges – consider EURJPY as discussed below. And really, while the volatility across FX is quite muted in USD pairs, the Swiss franc story is still alive and could impress further if EURCHF moves to test parity. Meanwhile, the weak JPY together with that powerful SNB shift to tightening at the June 16 meeting has set the CHFJPY to new modern-era highs save for those posted during the illiquidity mess intraday when the SNB removed the EURCHF floor back in early 2015.

Elsewhere, a pair like GBPUSD shows the market’s indecisiveness here: GBPUSD has posted a remarkable string of six days with almost no daily change in the closing price level, even as intraday volatility hasn’t been extremely quiet over the last week. Technically, the pair is poised in a pivotal area after collapsing to 1.2000, a massive long-term chart level, with the recovery since taking it the pivot zone ahead of 1.2400-50, which it needs to vault to suggest a bullish reversal of the last sell-off leg. Of course, the pause in the price action already helps unwind downside momentum but increases uncertainty. EURGBP is in a similar state – having posted a bearish reversal earlier this month, but one that has remained unconfirmed since, such that the technical relevance of that reversal has faded. Today, EURUSD had yet another go at the 1.0600 level – one that failed, but let’s have a look on the Friday close where that pair stands.

Chart: EURJPY
EURJPY is pushing on the upside resistance above 144.00 today as EU core yields rose sharply again and are closer to their respective top than, for example, US yields. As long as the ECB insists on rearranging its balance sheet to prevent peripheral yields from rising, it means the market will have to absorb far more core EU bonds, and a higher yield of those bonds. On the one hand, this is euro-supportive versus the yen from a yield-spread perspective, given the Bank of Japan’s cap on yields out to 10-year JGB’s, but at some point, existential concerns could creep back into the picture for the EU. If yields are set to rise again everywhere, EURJPY and other crosses could be set for further aggravated gains until the Bank of Japan is forced to go down in flames and relent on its policy, sooner or later (with the risk of violent bouts of ministry of finance interventions, verbal and actual).