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  • Mike Paterson

USD demand and JPY supply continue

Wednesday 7 September 2022

Variable risk sentiment in the past 24 hours after yesterday's equity rally fizzled out again but the main themes of fIrmer USD tones and JPY supply still prevailing on the back of bond yields which sees cross and core pairs underpinned as USDJPY surges ever-higher to 144.38. Gold is in retreat again and back below $1700 while oil is also sliding as the fragile global backstory continues.

Lots of the usual rhetoric out of Japan about "erratic moves" and "watching closely" et al but markets and traders not fazed still and the beat goes on. If/when there is a reversal it's going to be a rapid one methinks. CNY continues its tumble too while the Pound and Euro still getting support from JPY crosses despite the USD demand. The new UK PM has appointed her new Cabinet and Kwasi Kwarteng becomes Fin Min. Ex Eton school and Cambridge University Kwarteng is a close political ally of Truss and has previously been Business Minister opposed to tax rises. He will hope to find a magic wand but faces a tough time ahead for sure.

Bank of Canada make their lastest policy decision today at 14.00 GMT with 75bps rate hike expected and then its all eyes on the ECB tomorrow for their highly anticipated/factored-in 75bps hike too.BoE Governor Bailey and officials Pill, Mann, and Tenreyro speak in front of the UK Parliament Treasury Select Committee at 09:00 GMT. Hawkish tones on inflation expected but equally they won't be ignoring recession risks.

GBPUSD: Holding into 1.1450 in the latest retreat after yesterday's failure above 1.1600 and now posting 1.1520 still finding support from the JPY supply which has seen GBPJPY up to 165.86. Patience a virtue still but I prefer the rally-sell side and ever-poised. EURGBP: Holding 0.8565 in yesterday's extended retreat ahead of tomorrow's ECB decision but some support coming in from today's large options expiry interest at 0.8575 and now 0.8620. GBPJPY: USDJPY surging ever-higher has seen another rally to test 165.86 this time. I still think it's an over-extended move so we can expect some fragile price action and reversal but trend firm for the moment

EURUSD: A good hold of 0.9880 yesterday after the extended dip into 0.9860 but a decent bounce back to look at 0.9930 this morning helped by the EURJPY demand again. Rally sellers including me still poised. ECB/gas supplies still the elephants in the room. A few options in play today/tomorrow. USDJPY: USD demand/bond yields helping to underpin at 142.00 yesterday after that rapid rally and this time a surge to 144.38 in Asia. Over-extended I think still albeit admittedly with an upside bias.

EURJPY: Support yesterday into 140.80-00 and a surge toward 143.00 since on the JPY supply lifting core pairs too. Expect some two-way business but underpinned going into ECB tomorrow. USDCHF: Support at 0.9780 back in now amid the general USD demand but capping at 0.9870 as rally sellers remain poised with EURCHF capping at 0.9760 and some CHFJPY demand again.

EURCHF: Finding good support at 0.9720 still but capping at 0.9760 this time helped by that CHFJPY demand with sellers ever poised on inherent CHF demand too.

AUDUSD: Now broken down through 0.6740 after a cap into 0.6780-00. AUDJPY playing out too. GBPAUD rallying from 1.7050 as GBPUSD enjoyed the GBPJPY love again and testing 1.7130 with AUDUSD retreat outstripping GBPUSD. NZD retreat continues amid the USD demand but holding 0.6000 so far. GBPNZD holding around 1.9000 this time but finding sellers at 1.9125 in the bounce.

USDCAD: Capped at 1.3205 after a hold of 1.3150 amid softer oil and some CADJPY demand again and looking at 1.3160 again as I type. Expecting some two-way business overall still amid the fickle variables but BOC casting a shadow today.

Let's continue to be careful out there.

Interbank rates: 07.56 BST

GBPUSD 1.1493

EURUSD 0.9908

EURGBP 0.8620

GBPEUR 1.1600

GBPJPY 165.65

GBPCAD 1.5135

GBPCHF 1.1293

GBPZAR 19.9475

GBPHKD 8.9507

USDJPY 144.12

EURJPY 142.80

EURCHF 0.9760

EURHKD 7.7162

AUDUSD 0.6726

NZDUSD 0.6020

USDCAD 1.3179

USDCHF 0.9852

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