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Japanese Yen Significantly Extends Rally, USDJPY Trades Below 142.00

FOREX
  • Recession fears in the US continue to be the dominating driver of risk-off sentiment across global markets. The sharp moves for both core yields and major equity indices have filtered through to substantial strength for the Japanese Yen, extending its huge rally since Mid-July.
  • USDJPY (-3.08%) has registered a near 500-pip range Monday, and lows of 141.70 so far bring the pair’s post US-CPI pullback to an impressive 12.4%. We have significantly narrowed the gap to the December low of 140.25, a level which represents the most notable level of immediate support.
  • Non-greenback safe havens continue to be the currencies of choice as the market sees greater scope for bold easing from the Fed. There is non-negligible pricing of an inter-meeting FOMC cut noted and a cumulative ~126bp of easing priced into Fed Funds futures through the Dec FOMC. USDCHF is also down 1% and the pair has traded back below 0.8500. Markets will be eyeing the 0.8333 low from December, which would be the lowest level for the pair since the removal of the EURCHF floor in 2015.
  • Elsewhere, risk sensitive currencies in G10 are suffering, with AUD (-0.97%) the major laggard ahead of tomorrow’s RBA decision. The likes of NZD and GBP also trade on the back foot, although losses have been more contained up to this point.
  • Bucking the trend, the Euro outperforms which is likely tied to its lofty weighting within the USD index. The single currency is further assisted by EURGBP (0.7%) grinding its way higher, following the close back above the notable 0.8500 pivot.
  • In emerging markets, USDMXN currently trades up 3.00% as the risk off theme develops and attractive carry positions such as MXNJPY (-5.4%) continue to plummet. In similar vein USDZAR is up 1.4%.
  • The July ISM Services report takes on even greater importance than usual, as the next major US data point after the poor July employment report. A failure to return to expansionary territory above 50.0 would add another notch to the recessionary scorecard.
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