Blame it on the $JPY

Summary

• Declaration of war rhetoric from North Korea causes flurry of safe haven buying from the algos yesterday.  Treasuries, gold, silver and JPY all pop during NY trading.  Markets retracing a bit overnight.

• EURJPY losses 133.40 during the JPY surge yesterday, leading EURUSD lower ever since.

• GBPUSD barely hugging onto bullish thesis as 1.3460 support and been extended to 1.3420s.  Early London EURGBP sales helping.

• AUD and CAD drifting lower amid the safe haven and broader USD bid.

• CIBC out with bullish USD call into year end, versus EUR and GBP.

• CME open interest changes 9/25: AUD -1695, GBP -892, CAD +1741, EUR -1399, JPY -630

• Distillate-led rally in oil prices having no effect on commodity currencies.

Currency Calendar

Bank holidays and impactful report releases for select countries.

By The Numbers: Daily FX Snapshot

USD/CAD - Canadian Dollar

With a broadly higher USD lifting all boats and no CAD specific headline risk until tomorrow, USDCAD is now drifting easily towards the 1.24 handle.  Light resistance noted in the 1.2420s, but not much else above there at all.  Support in the 1.2350s.  EURCAD looking for support now in the low 1.46s.  Hearing talk of a sizable 1.2300 option expiry at the NY cut today (10am), but we’re far away from that at this hour.

EUR/USD - European Central Bank Euro

The Euro is struggling to look for support as we speak.  With the exception of US Consumer Confidence at 8:30 today, there’s not much in the way of the calendar to change sentiment.  Yellen speaks around the noon hour.  Sellers now firmly in control with not much support until the high 1.16s-low 1.17s.  The daily head & shoulders pattern we mentioned last week seems to now be playing out.  EURJPY has bounced off the 131.70s support level as we to press and the EURGBP has bounced off the 0.8750s.  Key here is how the longs react to this move.  While CME shorts have grown in the last two weeks (bringing the net long position down a bit), the longs (190k contracts+) have been hanging in there but are feeling the heat now. 

EUR/JPY - Japanese Yen

Blame it on the yen.  While the USDJPY chart is starting to retrace some of yesterday’s move on the North Korea headlines, EURJPY and GBPJPY continue to see selling and this is dragging EURUSD and GBPUSD below their respective support levels, in turn causing a broader USD bid.  The safe-haven bid is cooling off some at this hour with gold now $10 off its London highs and USDJPY back up towards 112.  Key level to watch here is the 131.70s (mentioned above, and holding for now).  A serious break of this level would open the floodgates to 129-130, and would be a big negative for EURUSD.  Add to that a market that is still net short JPY on aggregate (if we look at CME data) and we could be in for some fireworks.     

Market Analysis Charts

USD/CAD Chart

EUR/USD Chart

EUR/JPY Chart

Charts: TWS Workstation

About the Author

Erik Bregar - Trader

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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