After rising back above 120.00 late last month, USDJPY soon went back on the defensive, but a massive charge from bulls in Asia may have changed all that. The yen has been surging higher recently amid souring global investor sentiment, as it remains the safe haven currency of choice for investors fleeing commodity-backed currencies directly exposed to softening economic conditions in China, but USDJPY is back on the offensive in Asia.
The US dollar would generally also attract a lot of safe haven flows in this environment, but investors are nervous about the prospect of the Fed delaying its tightening cycle. EURUSD has actually been pushing higher recently, with the pair rising above 1.1300 twice yesterday. The Fed is concerned about the slow pace of inflation and may delay raising interest rates in the near-term as a result, especially if the recently extreme volatility in financial markets continues.
It’s also worth keeping an eye on US August NFP data this week:
• Friday (1230GMT) - The all-important NFP report is a major factor in the setting of monetary policy in the US, hence why it can be the most watched economic release in the world. The market is getting used to expecting a lot from these reports lately, with no one really questing that the US labour market is heading in the right direction. However, further wage growth is key to the overall health of the economy and the outlook for interest rates. NFP expected 218K; unemployment rate exp. 5.3%; average hourly earnings exp. 0.2% m/m.
USDJPY spiked above 120 early in the Asia session, but it’s still too early to see if bulls will be able to maintain this momentum. All eyes are on global investor sentiment to see if market participants are truly becoming more optimistic. Early signs in Asia aren’t good, with most major equity markets in Asia currently in negative territory.