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Risk Stabilisation Prompts Relatively Contained Currency Ranges

FOREX
  • The more stable session for risk sentiment and slightly firmer equity benchmarks have prompted less volatility in currency markets on Tuesday. Ranges throughout the US session have been relatively contained, with the Japanese yen on the back foot following yesterday’s surge higher.
  • USDJPY stands 0.85% on the day and after a strong rally overnight, the pair has been confined within its APAC trading range. 144.00 appears to be offering some short-term support with price action consolidating above 145.00 as we approach Wednesday’s APAC crossover.
  • The bounce off Monday lows for USD/JPY has provided a sense of stability in the pair, but prices remain at risk of a resumption of the short-covering JPY rally, with both leveraged funds and asset managers still maintaining a deep net short JPY position.
  • The likes of AUD and NZD have recovered around half a percent, with the former relatively outperforming following a modest hawkish lean to Tuesday’s RBA meeting.
  • Despite RBA Governor Bullock downplaying this week's financial market volatility, Monday’s price action emphasised the Aussie’s sensitivity to a turn in risk, with AUDJPY exhibiting a huge 5.75% range. Furthermore, price action across several AUD crosses highlight the vulnerability to a further deterioration for global market sentiment.
  • EURUSD sits 0.25% in the red, which reinforces the close negative correlation with the DXY this week, whereas GBP has underperformed on the session. Cable is down 0.6% and given the extreme focus on the yen Monday, today’s move might reflect positioning dynamics, with GBP still the standout bullish bet among investors, according to CFTC data.
  • This has helped EURGBP climb back above 0.8600, as the cross remains in bull mode following the weekly close back above the 0.8500 pivot area.
  • New Zealand employment and China trade data in focus on Wednesday, before German IP and the BOC minutes highlight a relatively quiet economic calendar.
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