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FOREX: CAD, MXN Gain Tariff Reprieve, But CNH Still in Crosshairs

FOREX
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  • JPY is slipping against most others in G10, pressed by a modest recovery in core European equities on the back of the Canadian/Mexican tariff reprieves. CHF, however, is firmer - showing that haven flows remain inconsistent. This keeps USD/JPY just above the 50-dma, however recoveries are capped by the 156.29 mark - the 50% retracement of the downleg off the YTD high.
  • US JOLTS jobs data is set to cross later today, alongside the final durable goods report for December, but it's headline risk surrounding tariffs that will likely remain the key driver of sentiment. Both Mexico and Canada secured last minute reprieves on universal 25% import tariffs, allowing governments a month for negotiations to avoid full installation in March.
  • China are yet to secure the same - and have announced plans for a 10% levy on US energy imports as a counteractive measure. It's these tariffs that will remain a focus for markets ahead. We wrote on Friday that CNH downside could be limited through this first  phase of tariffs, as the reaction function of the Chinese authorities remains  key. MNI wrote on January 17th that the PBOC will limit any sharp  depreciation of the CNY in response to tariff uncertainties as sharp CNY  depreciation will worsen capital outflows and impede monetary and fiscal  policy coordination.
  • As such, CNH downside could be limited over the short-term - price action  that would work against options market pricing that increasingly favours  USD/CNH calls. As such, collecting premiums via selling USD/CNH topside would  stand to benefit.
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  • JPY is slipping against most others in G10, pressed by a modest recovery in core European equities on the back of the Canadian/Mexican tariff reprieves. CHF, however, is firmer - showing that haven flows remain inconsistent. This keeps USD/JPY just above the 50-dma, however recoveries are capped by the 156.29 mark - the 50% retracement of the downleg off the YTD high.
  • US JOLTS jobs data is set to cross later today, alongside the final durable goods report for December, but it's headline risk surrounding tariffs that will likely remain the key driver of sentiment. Both Mexico and Canada secured last minute reprieves on universal 25% import tariffs, allowing governments a month for negotiations to avoid full installation in March.
  • China are yet to secure the same - and have announced plans for a 10% levy on US energy imports as a counteractive measure. It's these tariffs that will remain a focus for markets ahead. We wrote on Friday that CNH downside could be limited through this first  phase of tariffs, as the reaction function of the Chinese authorities remains  key. MNI wrote on January 17th that the PBOC will limit any sharp  depreciation of the CNY in response to tariff uncertainties as sharp CNY  depreciation will worsen capital outflows and impede monetary and fiscal  policy coordination.
  • As such, CNH downside could be limited over the short-term - price action  that would work against options market pricing that increasingly favours  USD/CNH calls. As such, collecting premiums via selling USD/CNH topside would  stand to benefit.