Markets
The Japanese yen hijacks all market attention. JPY goes through the roof against all global peers, in particular the US dollar. USD/JPY fell off a cliff Friday, from an intraday high of 159.23 to 155.7 in the close. The sharp decline continues at the start of the new week with the pair trading at 154.4 currently, breaking below the 154.83 support (23.6% retracement on the USD/JPY April-Jan rally). Support between 154.35 (December lows) and around 154 (big figure, 100 dMA) appears to hold for the time being. JPY strength originated after Bank of Japan governor Ueda concluded its presser. Ueda disappointed JPY bulls with its agonizingly slow hiking cycle even as inflation remains well north of the 2% target. That prompted the intraday high in USD/JPY. But then rumours began swirling that financial institutions had been asked to check on the yen’s exchange rate. This is typically the last stage before actual FX interventions. This time around, though, it weren’t just Japanese authorities doing the rate check, but the NY Fed. That suggests a possible coordinated FX market response in which one party (the US) essentially has unlimited firepower to buy JPY and sell USD. Japanese authorities have been frustrated over JPY weakness for quite some time and have since 2022 stepped unilaterally a couple of times. The last such coordinated JPY buying operation was in 1998. Japanese PM Takaichi, finance minister Katayama and other high-ranking officials over the weekend and today have all added fuel to the already wildly raging speculation fire. The topic will remain top of mind today. USD/JPY moves have spilled and are spilling over to other USD pairs. EUR/USD on Friday pierced through resistance at around 1.1775 coming from a downward sloping trendline connecting the Sep and Dec highs, smashed the 1.18 big fig and came just shy of the 1.19 level this morning. Key resistance is located at 1.1919, the September multiyear high. GBP/USD (cable) shot up to a 5-month high of 1.3664. The broader DXY index tumbled to 97.11 with the 96.22 lows looming. Commodities, metals in particular, are surging too. Gold hits a new high north of the symbolical 5k barrier, silver leaped beyond the $100 mark already on Friday. It’s suggestive of general dollar weakness, which we still see as a consequence of rising US risk premia tied to the administration’s unpredictable policies, domestic and foreign. The Senate Democrats are threatening with a partial shutdown over the Minnesota incident (see below) and serves as a case in point. Core bonds gain slightly this morning after a fairly uneventful session on Friday, when PMIs failed to inspire. The move lacks strength though and could be capped, especially in Europe, by another huge 10% jump in gas prices. In focus later this week are the Fed policy meeting along with some other smaller central banks (Hungary, Canada, Sweden, EU member states’ inflation and GDP numbers and some high-profile company earnings (Microsoft, Tesla, Meta, Apple …).
News and views
Democratic Senate Minority leader Schumer calls for changes to the Department of Homeland Security’s funding bill which he finds woefully inadequate to rein in the abuses of ICE (Immigration and Customs Enforcement). The Democratic move came after a second protestor died in Minnesota where the US administration sent huge numbers of federal officers to conduct a sweeping immigration crackdown and respond to escalating protests. Schumer wants to isolate the DHS bill from five other funding bills which the House last week voted in favor of (in one package). Any such proposed changes by the Senate would require a new vote in the House which is on recess this coming week. Unfortunately, the clock is ticking against Congress with a January 31 deadline looming. That’s when they run out of funding for much of the federal government. Passing the deadline without a deal in place risks triggering a partial government shutdown.
US president Trump reacted to the trade deal reached between Canada and China last week. It’s a wide-ranging agreement to lower trade barriers and rebuild ties. It includes lower tariffs on Canadian rapeseed, on Chinese EV’s, but also visa-free travel to Canadians. Trump now threatens Canada with 100% of tariffs against all goods and products coming into the US if Canada pushes through with its resolution on several important tariff issues. The Loonie isn’t impressed and holds its ground against an overall weak USD. USD/CAD (1.3675) slides towards the 1.36 support area.
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