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[MARKET ANALYSIS] USD/JPY sinks on potential intervention, DXY pressured into NFP

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[MARKET ANALYSIS] USD/JPY sinks on potential intervention, DXY pressured into NFP

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  • DXY trades lower this morning, and trades at the bottom end of a 100.95 to 101.43 range. Pressure which comes after the lack of hawkish remarks from Fed Chair Warsh at Wednesday's policy panel, and with the move further exacerbated by a hefty move in the JPY this morning.
  • On that front, this morning saw large and immediate selling pressure in USD/JPY, where the pair fell from 162.20 to a trough of 161.12. The pair then pared back about a third of that move, stabilising around 161.80, before then taking another beating towards the session low of 160.89 – now trading at levels not seen since 18 June.
  • Given the sheer size of the move lower, it does appear to be the case that this is potentially intervention, rather than a rate check. Details of whether they enacted a form of intervention will be released in the monthly release, which is released on the last business day of every month.
  • The move comes after Reuters reported that Japan would abandon its habit of warning the markets of intervention. The aim of this is to squeeze speculators and increase the cost of betting against the JPY.
  • The potential intervention comes ahead of today’s NFP report; a USD positive report could see some of the “potential intervention” move be pared back. To preview the report in brief,  US non-farm payrolls for June are expected to print 110K (prev. 172K), with the unemployment rate seen unchanged at 4.3%.
  • Thereafter, the risk for USD/JPY shifts to Friday, whereby holiday-thinned conditions will be expected on account of US Independence Day. Volumes will be lower, which means any forms of intervention will prove more effective, in enacted.
  • Other G10s are stronger against the USD this morning. JPY unsurprisingly outperforms, followed by the GBP and CHF. For the latter, Switzerland reported in-line/cooler-than-expected inflation metrics, which broadly play in favour of keeping rates on hold for the foreseeable future.

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