Yen plummets as BOJ stays ultra-dovish

BoJ maintains accommodative stance

The Bank of Japan has just reaffirmed its dovish stance at its policy meeting, and its commitment to cap 10-year JGB yields at 0.25%. Following on from a slight firming of US yields overnight, the Yen has plummeted in Asia as the US/Japan rate differential looks set to widen even more. USD/JPY has soared by 0.95% to 129.65 today, following a rise of 0.95% yesterday as well. ​ Resistance at 130.00 has held this morning, but a retest seems inevitable now as broad US dollar strength continues. Support remains at 127.00 and 126.00 and although the technical picture is overbought, any dips by USD/JPY should find plenty of willing buyers.

Elsewhere, the US dollar powered higher overnight as risk-aversion, the threat of more aggressive Fed hikes and ever-widening interest rate differentials kept the US dollar’s momentum going. The dollar index jumped by 0.68% to 103.00 overnight, taking out the top of a multi-year triangle at 102.50. In Asia, yen weakness has flowed through to EUR weakness and combined, has propelled the dollar index 0.43% higher to 104.33. A weekly close above 103.00 resistance this week will have me pondering making a call for the 120.00 region in the months ahead. In the short-term, support lies at 101.00 followed by 99.75.

EUR/USD tumbled once again overnight, taking out support at 1.0600 as the Russian gas export ban on Poland and Bulgaria provided yet another headwind to the single currency. EUR/USD fell 0.74% to 1.0560. In Asia, the sell-off continues as the yen plummets. EUR/USD has fallen 0.45% to 1.0510. The FT story that European companies are preparing to pay roubles for Russian gas has had no positive impact today. The failure of the multi-decade decade support line at 1.0800 is a significant development, as is the ease with which it fell through 1.0600 support overnight. Although a short-term relief rally is not out of the question thanks to the oversold short-term technical picture, EUR/USD remains on track to test 1.0300. The response of European officialdom to the alleged plan to pay for gas in roubles will likely dictate if parity is tested in the weeks ahead.

GBP/USD has consolidated just above 1.2500 overnight, easing to 1.2510 in Asia. EUR/GBP selling and GBP/Yen buying is adding some support to the sterling today but have not been enough to spark an overdue relief rally as the relative strength index (RSI) is now at extreme oversold levels. Any relief rally will be short-term as the broader technical picture is now signalling further losses to 1.2200 and potentially sub-1.2000 in the weeks ahead. GBP/USD would need to reclaim 1.3050 to change the bearish outlook.

AUD/USD edged lower overnight but has slumped in the face of US dollar strength this morning. AUD/USD has fallen 0.50% to 0.7100, taking out support at 0.7150. Unless global risk sentiment swiftly reverses, AUD/USD looks on course to test 0.7050 and 0.6950 by early next week. NZD/USD has slumped 0.70% to 0.6500 in Asia as business confidence data plummeted and imports soared. Resistance is at 0.6700 but the failure of support at 0.6525 today could signal a test of 0.6400 this week.

US dollar strength has lifted onshore and offshore USD/Yuan higher today as covid lockdowns spread and mass testing in Beijing begins. USD/CNY has risen by 0.40% to 6.5900. Meanwhile, USD/CNH soared through 6.6000, jumping 0.70% to 6.6315. With the PBOC seemingly unconcerned about the pace of the Yuan retreat, economic clouds domestically, and an expectedly hawkish FOMC due next week, further yuan weakness seems inevitable. That will likely spill over into regional currency weakness as well.

Asian currencies are weaker today as well, thanks to the sell-off in the Chinese yuan, a much weaker yen, and general US strength ahead of an expected 0.50% hike by the Fed next week. The won has once again been a proxy for Asia’s nerves, USD/KRW rising overnight and gaining another 0.40% to 1271.00 today. That has prompted warnings by the finance minister that the pace of the fall is too fast. I expect to see intervention by the Bank of Korea ramp up and they won’t be alone among the region’s central banks. The Malaysian ringgit has been surprisingly resilient. USD/MYR holding at 4.3600. Soaring palm oil prices, thanks to Indonesia, appear to be supporting MYR for now. In the bigger picture, slowing China growth and higher US interest rates mean more Asia FX weakness ahead.

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