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FOREX: USD/JPY Surges Off Lows as Mixed BoJ Headlines Favour JPY Sales

FOREX
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  • USD/JPY has rallied well off lows, with the pair north of Y152.50 headed into the NY crossover. USD/JPY rallied hard off 151.02 lows on a Bloomberg sources report that flagged that while some officials are "not against" a rate hike in December, the Bank are said to see little cost in waiting for the next hike. The headlines prompted a flurry of activity, with over $1.3bln in JPY futures trading within a minute - comfortably the best participation of the session so far.
  • As a result, the USD is firmer Wednesday, with only the AUD and NZD underperforming the JPY. Antipodean currencies came under pressure amid raised speculation that Chinese officials are considering a weaker CNY path across 2025 to counteract the potential impact of US tariffs. The Reuters piece tipped USD/CNH toward Monday highs of 7.2927 in response.
  • EUR vols being marked notably higher today, as the overnight contracts now capture the fallout of both the US CPI print later today as well as the ECB rate decision tomorrow. Overnight implied has touched 18.5 points for the second highest reading of 2024 (after the US Presidential election results), which blows out the break-even on an ATM straddle to around 80 pips, over double the YTD average.
  • US CPI is the data highlight ahead, with markets expecting the Y/Y print to tick up to 2.7%, and the M/M to 0.3% - an increase of 0.1ppts across both readings. The datapoint is last consequential release ahead of the Fed decision next week.
  • The Bank of Canada decision is a key focus Wednesday, with markets expecting another follow-up 50bps rate cut, putting the policy rate at 3.25%. Ahead of the decision, USD/CAD is in minor positive territory and well within range of the cycle high and bull trigger of 1.4195. The pace of the uptrend is typified by the growing premium of the 50-dma over the 200-dma today, which has topped 200 pips - the highest since late 2022.
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  • USD/JPY has rallied well off lows, with the pair north of Y152.50 headed into the NY crossover. USD/JPY rallied hard off 151.02 lows on a Bloomberg sources report that flagged that while some officials are "not against" a rate hike in December, the Bank are said to see little cost in waiting for the next hike. The headlines prompted a flurry of activity, with over $1.3bln in JPY futures trading within a minute - comfortably the best participation of the session so far.
  • As a result, the USD is firmer Wednesday, with only the AUD and NZD underperforming the JPY. Antipodean currencies came under pressure amid raised speculation that Chinese officials are considering a weaker CNY path across 2025 to counteract the potential impact of US tariffs. The Reuters piece tipped USD/CNH toward Monday highs of 7.2927 in response.
  • EUR vols being marked notably higher today, as the overnight contracts now capture the fallout of both the US CPI print later today as well as the ECB rate decision tomorrow. Overnight implied has touched 18.5 points for the second highest reading of 2024 (after the US Presidential election results), which blows out the break-even on an ATM straddle to around 80 pips, over double the YTD average.
  • US CPI is the data highlight ahead, with markets expecting the Y/Y print to tick up to 2.7%, and the M/M to 0.3% - an increase of 0.1ppts across both readings. The datapoint is last consequential release ahead of the Fed decision next week.
  • The Bank of Canada decision is a key focus Wednesday, with markets expecting another follow-up 50bps rate cut, putting the policy rate at 3.25%. Ahead of the decision, USD/CAD is in minor positive territory and well within range of the cycle high and bull trigger of 1.4195. The pace of the uptrend is typified by the growing premium of the 50-dma over the 200-dma today, which has topped 200 pips - the highest since late 2022.