EUROPEAN FX UPDATE: Usd/Jpy tops 125.00 as BoJ attempts to maintain YCC

Analysis details (10:20)

JPY/DXY

The signs were already looking even more ominous on Friday when US Treasuries were succumbing to further downside pressure and the Yen was paring recovery gains, so the latest collapse in global bonds is merely accentuating the yield differential rationale behind spikes in the likes of Usd/Jpy and Jpy crosses. In fact, the BoJ has effectively given Yen bears the green light to keep selling as it pre-announced bond buying operations for consecutive days from March 29 to 31, via unlimited fixed-rate purchases of 10 year JGBs at a yield of 0.25% which is the upper end of its target band, in similar vein to the intervention taken overnight. The headline pair breached 125.00 in response at one stage after scaling barriers at 123.50, 124.00, 124.50 and the big figure itself, while surpassing yet another multi-year top at 123.76 from December 2015 on the way, and with little in terms of technical resistance before 125.50 unless the MoF decides that enough is enough. Conversely, the Dollar index is back over 99.000 and eyeing the y-t-d peak at 99.415 from March 7 having eclipsed the 99.297 high set on March 14. 

CHF

Also falling prey to rate and policy divergence syndrome following comments from SNB chair Jordan reiterating that the nominal value of the Franc is different to its real value and businesses can cope with a stronger nominal currency due to higher inflation abroad. Moreover, latest weekly Swiss sight deposit balances reveal a dip in domestic bank accounts that implies no official intervention. Hence, Usd/Chf is up around 0.9375 and Eur/Chf sub-1.0300, albeit off lows under 1.0250 as the Euro gleans much more from the aforementioned Yen depreciation.

CAD/NZD/GBP

All softer against the Greenback, with the Loonie also acknowledging a relatively pronounced retracement in crude prices and Sterling not immune to the fact that Brent is backing off with WTI. However, Usd/Cad is capped into 1.2500 and Cable is holding above 1.3150 after a brief foray under the half round number on broader risk considerations. Elsewhere, the Kiwi is hovering near 0.6950, but lagging amidst Westpac’s observations that markets may be pricing in too much RBNZ tightening over the next two years.

AUD/EUR

The Aussie continues to outperform due to its close commodity correlation, with Aud/Usd building momentum on the 0.7500 handle and Aud/Nzd testing 1.0850 irrespective of a marked decline in NAB’s Q1 business sentiment index. Aud/Jpy continues to fly and Eur/Jpy is tagging along to the benefit of the Euro as noted above. Indeed, Eur/Usd has regained enough poise to rebound from lows just beneath 1.0950 to get to within a pip or two of 1.1000 before waning.

SCANDI/EM

No surprise to see the Nok come off the boil with oil and on the back of a fall in Norwegian retail sales, but the Sek is retreating too following somewhat mixed Swedish trade data, while the Cnh and Cny are resilient in the face of Shanghai going into lockdown and Chinese industrial profits slowing markedly, as the PBoC pumped in net liquidity.

28 Mar 2022 - 10:20- Fixed IncomeData- Source: newsquawk