FX Update: Market set to put next BoJ Governor Ueda’s feet to the fire?

FX Update: Market set to put next BoJ Governor Ueda’s feet to the fire?

Forex
John J. Hardy

Global Head of Macro Strategy

Summary:  The US dollar remains firm, held back slightly yesterday by a modest brightening in sentiment and yields easing a bit lower. Overnight, nomination hearings for Kazuo Ueda, the likely successor to Kuroda at the helm of the Bank of Japan, gave the impression that Ueda will be in no rush to tighten BoJ policy. If yields continue to run higher, the outgoing Kuroda and incoming Ueda are going to have their feet put to the fire by a weakening JPY.


Today's Saxo Market Call podcast
Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: USD remains firm after wobble on yields consolidating yesterday. USDJPY could rip higher as likely incoming BoJ Governor Ueda signaled little urgency to normalize BoJ policy in hearings overnight.

The government nominee to replace Kuroda at the helm of the Bank of Japan, Kazuo Ueda, signaled a very cautious approach to the daunting task of a transition away from the Bank of Japan’s aggressive easing policy of the last 10 years in his three-hour nomination hearings before the Lower House overnight. “If I’m appointed BoJ governor, my mission isn’t to come up with some kind of magical, special monetary policy…As I’ve mentioned before, if you look at the trend in prices, there are improvements we’re seeing, but the situation remains that it’ll take some time until we’ve securely achieved 2% inflation.” This looks quite dovish given the significant backup in yields nearly everywhere else around the world, and also looks like a setup for Mr. Ueda to have his feet held to the fire by a powerful new round of JPY weakening if global yields continue to rise from here. USDJPY is vulnerable to testing the next layers of resistance as discussed below in the USDJPY chart.

Chart: USDJPY
USDJPY is pushing on local resistance here and could be set for a significant advance higher if global yields continue to advance after likely incoming BoJ Governor Ueda failed to signal any urgency on tightening BoJ policy. The first level coming into view is the 200-day moving average just above 137.00 if local highs are taken out, but another solid advance in US treasury yields could quickly set the focus higher on major retracement levels for the sell-off from the 151.95 top to the bottom of the correction at 127.23, like the 61.8% retracement near 142.50.

Source: Saxo Group

Elsewhere, as discussed in this morning’s Saxo Market Call podcast, we note the general failing of the China recovery narrative, as commodity prices have faltered over the last month, the CNH continues to weaken broadly (not just versus the USD) and the Aussie is serving as a solid proxy on that front. It has rolled over aggressively versus the NZD, sparked this week by the combination of softer than expected AU wage data and a more hawkish than expected NZD, but the critical AUD pair in focus is AUDUSD, which is testing below the 200-day moving average again today. Besides general correlation with risk sentiment for that pair, also watching copper as a coincident indicator, with further broad AUD weakness a risk if the price punches well below $4/lb.

Broadly speaking, the USD is an expression of risk sentiment and the backdrop remains testy, with an overriding concern of escalating tensions between the US and China as Ukraine risks becoming a Cold War-style proxy war, as well as the technical situation in US equity markets, where the recent action has been poised on critical support levels (rising trend-line and 200-day moving average in the case of the S&P 500. The January PCE inflation data is up later today – watch the core month-on-month for directional surprises. Note that next week’s US data does NOT include the jobs data on Friday, which won’t be reported until the following Friday, March 10 (also the day of the next BoJ meeting, Kuroda’s swan song – should prove an interesting day for USDJPY.)

Table: FX Board of G10 and CNH trend evolution and strength.
Note the CNH relative weakness despite USD strength, note the AUD relative weakness. Signals are muted elsewhere, with relative SEK strength largely an artifact of the big move off the back of the Riksbank meeting now more than two weeks ago.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
The 11.00 level in EURSEK seems to be sticky here and SEK outperformance would likely be difficult if global sentiment continues to head south. More AUD pairs tilting into negative trends, including AUDNZD on a close in the low 1.0900’s today. USDCAD quietly trying to crawl higher – watching 1.3700+ next resistance there.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1330 – US Jan. Personal Income and Spending
  • 1330 – US Jan. PCE Inflation
  • 1500 – US Jan. New Home Sales
  • 1500 – US Feb. Final University of Michigan Sentiment
  • 1515 – US Fed’s Mester (Non-voter) to speak
  • 1600 – US Feb. Kansas City Fed Services Activity
  • 1830 – US Fed’s Collins (Non-voter) to speak
  • 1830 – US Fed’s Waller (Voter) to speak

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.