USD/JPY falls on apparent BOJ intervention, ASX hits 6-month low: Asian Open

A surge of yen strength shook currency markets when USD/JPY crossed above 150, prompting calls that the BOJ had finally intervened after much warning. Whether they have remains to be confirmed by officials, but the -290 pip fall in five minutes suggests they likely have.

The last time the BOJ intervened back in October, it marked the beginning of a -16% decline on UD/JPY over the next three months. Yet with US bond yields screaming higher along with the US dollar, it seems unlikely we'll see a similar move on USD/JPY over the coming weeks unless bond traders step up to the mark to support prices to suppress yields. But even then, the Fed remains hawkish and the US dollar remains bid. And that makes USD/JPY is a difficult market to bet against as pullbacks are likely to be bought.

Still, prices are a little shell-shocked and that could make for difficult trade today in Asia. Prices have already flat-lined to a narrow range Tuesday’s aggressive selloff, which suggests prices may struggle to find a clean move today as traders absorb the latest developments.

US employment data bolsters Fed hike bets, bond rout deepens

US JOLTS job openings rose 690k to 9.61 million, bolstering bets that the Fed may have to hike at least one more time. Fed fund futures now imply a 30.1% chance of a 25bp hike in November, up from 16% one week ago. The Fed’s Mester says she is likely to support another hike at the next meeting if the current economic situation holds and does not see cuts happening any time soon. And whilst Bostic sees a single 25bp, it is not until the end of next year.

US bond yields continued to scream higher, particularly at the long end with the 10, 20 and 30-year rising ~2-3x their normal 1-year ‘up-day’ average. The 30-year yield reached a 16-year high and within striking distance of 5% as yield curve attempts to normalise, which is when the long end of the curve is higher than the short end (currently the yield curve is inverted with shorter yields trading higher than longer yields).

AUD was the weakest FX major, with AUD/USD down nearly 1% and falling to its lowest level since November and within pips of testing 63c
JPY was the strongest FX major, which saw AUD/JPY suffer its worst day in nearly 7 months
The S&P 500 broke beneath its October trendline yet held above the 4200 handle, the VIX (volatility index) rose to a 6-month high
The MOVE index (bond market implied volatility) rose to a 4-month high
The US dollar index reached a fresh YTDF high, although it was a small-range shooting star which suggests a loss of momentum to the trend
Gold fell for a seventh consecutive day to a 7-month low and trade just $20 above $1800, the next key level of support for bulls to defend
APAC futures point to a weak open for local share markets today, with the Nikkei expected to open at a 4-month low and the ASX down at a 6-month low around a key support level at 6900

Events in focus (AEDT):

Public holiday in China
09:00 – Australian AIG construction, manufacturing index, S&P global services PMI
10:00 – South Korean industrial production, retail sales, service sector output
11:30 – RBA chart pack
12:00 – RBNZ interest rate decision, statement
18:55 – German services, composite PMIs
19:00 – ECB president Lagarde speaks
19:30 – UK services, composite PMIs
20:00 – Euro PPI, retail sales
21:00 – OPEC meeting
23:15 – US ADP employment change
00:45 – S&P Global US services, composite PMIs
01:00 – ISM services PMI

ASX 200 at a glance:

The ASX 200 fell to a 6-month low on Tuesday and below 7,000 for the first time since March
6900 is a major support level which has supported the ASX 200 for the best part of a year, so how it interacts with that level today could be key for sentiment going forward
A weak lead from Wall Street and SPI futures overnight points to a weak open, but should just above hold above 6900 (initially at least)
If dip buyers manage to support the market, 7,000 comes into focus, where bears may be waiting on the sideline to re-enter and seek a break below 6,900
Rising AU yields are likely to keep pressure on ASX stocks, so they may need to pull back from their cycle highs for the ASX to stand any chance of finding a swing low

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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