Cross-Asset Flows In Focus As USD Softens, JPY Tops G10 On BoJ Inflation F’cast Talk

The USD finds itself at the bottom of the G10 FX table as we head into the first full European trading session of ’23.

• This comes as participants return from the festive break and assess softer than expected official PMI data out of China, continued hawkish ECB speak, speculation surrounding a hawkish inflation forecast shift from the BoJ and the continued fallout from the rollback of China’s ZCS.
• FX trade was volatile around the re-open of U.S. FI & equity futures.
• We then saw a soft start for Hong Kong’s benchmark Hang Seng Index lend support to the traditional safe havens (JPY, CHF & USD), although a reversal in the fortune for that index, which allowed the S&P 500 to reverse losses after early, two-way gyrations, changed the tone of the session. This combination supported U.S. Tsy futures, after an early push higher faded a little, applying further weight to the USD.
• Slightly softer than expected Caixin m’fing PMI data did little for markets.
• The JPY sits atop the G10 FX table, with the aforementioned hawkish speculation surrounding the BoJ’s inflation projections lending further support to the JPY. USD/JPY hit a multi-month low of Y129.52, with technical support in the form of the Jun 2 ’22 low (Y129.51) holding. A Tokyo holiday thinned out wider liquidity.
• USD/CNH probed CNH6.8800, as it registered its own multi-month low, with the next level of meaningful technical support in the pair located at the 200-DMA
• Looking ahead, state and national CPI data out of Germany provide the focal points of the broader macro docket on Tuesday.