Synopsis:

MUFG sees room for further JPY appreciation as hawkish comments from BoJ officials fuel expectations of more aggressive rate hikes. BoJ board member Naoki Tamura signaled rates could reach 1% in the second half of the fiscal year, pushing USD/JPY lower to 151.82 overnight. Stronger wage data adds to speculation of earlier-than-expected hikes.

Key Points:

1. BoJ’s Tamura Signals More Hikes Ahead

   • He sees 1% as a neutral rate, suggesting that current levels are still highly accommodative.
   • He emphasized that rate hikes could be faster or slower than the market's expectation of one hike every six months.

2. Hawkish Commentary Supports JPY Strength

   • The yen strengthened further as the market adjusted to faster BoJ tightening expectations.
   • MUFG now sees risks skewed toward earlier rate hikes, depending on economic data.

3. Stronger Wage Growth Encourages More Aggressive Policy Action

   • December wage data came in stronger than expected, increasing speculation of an earlier BoJ rate hike.
   • The BoJ is expected to monitor Rengo wage negotiations, with preliminary results starting next month.

Conclusion:

MUFG maintains its forecast for BoJ hikes in July and January, bringing rates to 1.00%, but sees growing risks of earlier hikes. With hawkish BoJ signals and stronger wage data, JPY strength could extend further as markets reprice the likelihood of faster rate hikes.

• EUR/USD -0.4%, USD/JPY -0.13%, GBP/USD -0.71%, AUD/USD -0.29%

• S&P E-minis 0.02%, DAX 0.77%, Nikkei 225 0.61%, FTSE 1.15%

• Recent correction paves the way for deeper EUR/USD drop

• USD/JPY's latest rebound could well run out of steam

• GBP/USD drops towards 1.24 before expected BoE rate cut

• AUD/USD within strike of 0.6275 as Greer digested

• Option expiries . U.S. Open

(Martin Miller is a Reuters market analyst. The views expressed are his own)

Feb 6 (Reuters) - FX traders should beware that USD/JPY has taken a turn for the worse - the expectation is for a deeper slump to probe 150 in coming sessions if a key technical level is fully overcome.

The yen climbed to an eight-week top versus the dollar on Thursday, after a Bank of Japan policy board member advocated continued interest rate hikes. The BOJ's Naoki Tamura said the central bank must raise rates to at least 1% or so in the latter half of fiscal 2025, with upward risks to prices rising.

USD/JPY has broken the 152.56 Fibonacci level, a 61.8% retrace of the 148.65 to 158.88 (December to January) EBS rise, but bears need to register a daily close below. That would expose the 151.06 Fibo, a 76.4% retrace of the same 148.65-158.88 rise.

While 14-day momentum is negative, that highlights the underlying downside risk. However, if USD/JPY fails to register a daily close below the 152.56 Fibo, that would hurt bears and possibly shift the trajectory of this currency pair back to the upside.
Daily Chart:

(Martin Miller is a Reuters market analyst. The views expressed are his own)

• Cable drops to 1.2429 ahead of expected BoE interest rate cut at 1200 GMT

• 1.2429 is over a cent below Wednesday's one-month high (1.2550)

• GBP/USD might fall further if BoE guidance is more dovish than expected

• Bear targets include 1.2384 (Tuesday low), 1.2300 and 1.2249 (Monday low)

• BoE quarterly MPR also due at 1200 GMT; ensuing presser starts at 1230 GMT

• UK Jan construction PMI 48.1 vs 53.4 f/c. US NFP data due Friday; 170k f/c

GBPUSD

(Robert Howard is a Reuters market analyst. The views expressed are his own)

• EUR/USD dropped from 1.1214 to 1.0177 becoming oversold

• Subsequent rebound reached 1.0535 where pair was overbought

• Following drop to 1.0125 became stretched resulting in reverse to 1.0443

• Lower highs for recoveries hint at further weakness

• Drop less stretched and fewer short euro after the rebound

• Parity (1.0027) is next target should downtrend be resumed

• High probability EUR/USD drops into a lower range

• Options cast any EUR/USD fall under parity in worrying light

• *


EURUSD


EURUSD

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

• Overnight expiry FX options included the BoE rate decision from Wednesday

• There was no change to the price of overnight expiry GBP options Tues-Wed

• Implied volatility was 14.0 - premium/breakeven 73 USD pips either direction

• However, Overnight expiry is now Friday and therefore includes U.S. NFP

• That's lifted overnight expiry implied volatility to 17.0 or 89 USD pips

• Market fully pricing 25bps cut to 4.5% on Thursday with an 8-1 vote

• Related comment
Overnight expiry GBP/USD implied volatility

(Richard Pace is a Reuters market analyst. The views expressed are his own)

• Long-tails on Monday and Tuesday candlesticks point to a downside rejection

• Also fourteen-day momentum has been positive since Jan. 20

• However the thick Ichimoku cloud supply should limit further recovery moves

• The daily cloud currently spans the 1.0384-1.0581 region

• We are short at 1.0400 in anticipation for a bearish resumption

• EUR/USD Trader . Previous update

Daily Chart:

(Martin Miller is a Reuters market analyst. The views expressed are his own)

(Amends high for recovery to 1.0443)

Feb 6 (Reuters) - There is a high probability EUR/USD drops into a lower range following the decisive break below that which dominated for almost two years.

EUR/USD spent much of the time within 1.05-1.10 in 2023 and 2024, with the low point in that period at 1.0448 far exceeded this year after the U.S. imposed tariffs on Mexico and Canada.

Although EUR/USD has swiftly rebounded from the resulting low at 1.0125 after those tariffs were delayed, which imply the sell-off was overdone, it may struggle to sustain strength above the base of the old range.

So far the recovery has reached 1.0443 which is below the low point of the two previous trading years on the back of short covering.

The two main reasons for the sell-off remain intact, with interest rate differentials set to widen further in favour of the U.S. currency, and risk aversion stemming from the trade dispute supporting it.

This should be more than enough to discourage traders from purchasing euros at what are now elevated levels.

While the swift reverse may deter sellers too, the significant break to the downside gives investors reason to hedge the risk that a lower range develops, perhaps 1.00-1.05.
eurusd

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own. Editing by Alison Williams)

• USD/JPY recovers to 152.31 from 151.81; Nikkei +0.5%

• Flinches away from key 38.2% Fibo support at 151.51

• But convergent 100, 200 DMA near 152.80 will deter bulls

• BOJ's Tamura tacks on more hawkish rhetoric

• Says the pace of hikes not necessarily once every half-year

• Adds to earlier remarks that rates should be hiked to 1%
JPY:

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

• GBP/USD down 0.1% in Asia after trading in a narrow 1.2490-1.2509 range

• Touch offered as focus turns to economic data, c.bank rate expectations

• BoE rate decision Thu, widely expected to cut rates by 25 bps

• Guidance will be key; BoE expected to remain slightly more dovish than Fed

• U.S. jobs data Fri, inflation data and Powell testimony next week key

• Recovery from 1.2249 Mon low fails below 1.2573, 50% of 1.3046-1.2100 drop

• Support 1.2435-40, 1.390-1.2400
GBP:

(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

• USD/SGD tugged lower to 1.3479 as USD/JPY falls further

• Bollinger downtrend channel engaged on Thurs close below 1.3486

• That would guide it toward 1.3424 base of Ichimoku cloud

• If cloud base breaks, 100 and 200 DMA supports will be exposed

• BOJ remarks send USD/JPY to lowest since Dec 12

• BOJ's Tamura says must hike rates to at least 1% this FY
SGD:

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

• EUR/USD unchanged in Asia after closing 0.2% higher on Thursday

• Buoyed by broadly weaker USD as U.S. yields slide on soft economic data

• Prospects of further Fed rate cuts despite tariff uncertainty support

• Trade war fears abate for now but risk of Trump tariffs on EU remain

• Focus turns to U.S. jobs data Fri and inflation data next week

• Powell's semi-annual Congressional testimony Wed also key for rates

• Resistance at 1.0438, 76.4% of Jan-Feb, clear break opens 1.0500

• Support 1.0350, 1.0320; Wed range 1.0370-1.0443; support
EUR:

(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

• A sub-index of Australian gold stocks rises as much as 2.2% to an all-time high of 10,174.30 points

• Trade war jitters continue to attract investors to the safe-haven metal, sending prices to record highs [GOL/]

• Northern Star Resources jumps as much as 3.1% to a record high of A$18.330

• Evolution Mining rises up to 1.9% to reach its highest level since mid-November 2020

• ASX-listed shares of Newmont Corp rise 2.3% to a three-month high

• As of last close, AXGD up 18.2% this year vs a 3.2% gain in the benchmark index

(Reporting by Himanshi Akhand in Bengaluru)

• USD/JPY skewed lower after key downside break on Wed

• Ended below Ichimoku cloud base, confirming a sell signal

• Also closed below 100 and 200 DMA which converge near 152.80

• Bearish technical bias will attract more sellers toward 150

• US yields fell as Besset said Trump wants lower rates

• Market may be betting that Trump will pressure Fed to cut
JPY:

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

Synopsis:

ING argues that markets may be underestimating the risks of a prolonged US-China trade conflict, keeping downside risks in place for AUD and NZD. While optimism has grown after the US border deal with Canada and Mexico, tariffs on China allow Trump to negotiate on his own timeline, meaning that risks for AUD and NZD remain skewed to the downside.

Key Points:

1. Markets Are Pricing in a US-China Trade Deal Too Quickly

   • The measured response by China to Trump’s tariffs has fueled market optimism.
   • However, Trump has indicated he’s in no rush to engage with President Xi Jinping.

2. AUD/USD Has Fully Erased Its Risk Premium

   • AUD/USD – often used as a proxy for China sentiment – no longer reflects trade war concerns.
   • This may be premature, as tariffs on China are not as immediately impactful as those on Canada and Mexico, allowing Trump to extend negotiations.

3. Downside Risks for AUD and NZD

   • The market is pricing in a deal, but ING believes it is still too early to rule out a more prolonged US-China trade conflict.
   • With Trump having time to negotiate and China’s retaliatory tariffs set to take effect on January 10, the risks remain for a lower AUD and NZD.

Conclusion:

Despite recent optimism, ING remains cautious on AUD and NZD, warning that markets may be too quick to price out US-China trade risks. With Trump in no rush to negotiate, the balance of risks remains tilted lower for AUD and NZD, especially if trade tensions escalate further.

• AUD/USD broke topside 0.6260 resistance overnight trading to high of 0.6296

• U.S. yields lower after softer than expected services PMI (52.8 v 54.0 exp)

• Continuing to press upper hourly Bollinger Band indicating sustained buying

• January high near 0.6330 looks to be next test for AUD bulls

• Focus turns to Australian trade data later today

• Balance on goods 7,000mln expected (prior 7,079mln)

• Overnight AUD range 0.6241-0.6296
AUD

(James Connell is a Reuters market analyst. The views expressed are his own.)

Feb 5 (Reuters) - The U.S. dollar index slumped with Treasury yields on Wednesday following Fed comments and a report that suggests the U.S. services sector may be losing steam at the same time inflation pressures are cooling, potentially opening the door for more rate cuts. ISM’s non-manufacturing PMI slipped 1.3 points to 52.8, with the new orders and prices paid subindices both falling.

A sharply wider trade deficit in December appeared to be the result of restocking before U.S. tariffs were implemented. The ADP report on employment growth for January beat estimates, showing 183,000 jobs were added versus 150K expected. This comes before the U.S. non-farm payrolls report on Friday. Richmond Fed President Tom Barkin said he expects annual inflation rate figures will come down and that the central bank is still leaning toward rate cuts this year. He adds that there is uncertainty about the impact of new Trump administration initiatives on things like tariffs, immigration and regulations.

EUR/USD rose for a second day as the dollar was pressured and euro shorts covered. The pair was trading in the top half of its 21-day Bollinger range though has yet to retake the 1.05 level amid lingering concerns about possible U.S. tariffs and soft growth in the region. Expiries at 1.0400 may offer nearby support.

European Central Bank Chief Economist Philip Lane suggested slowly easing policy to balance growth and inflation risks.

USD/JPY was actively sold following the weak US ISM report, adding to short positions established earlier on Wednesday following robust Japanese wage data and corporate earnings. The pair fell below its 200-DMA and 100-DMA at 152.73-80 and its cloud bottom at 153.37, finding support near 152. Yen option demand suggests weakness may persist into U.S. jobs data Friday. A 38.2% Fibonacci level at 151.50 offers support below 152.

GBP/USD rose 0.2% ahead of an expected rate cut at Thursday's Bank of England policy meeting.

Treasury yields fell 5 to 12 basis points as the curve flattened. The 2s-10s curve fell about 6 basis points to +23.8bp.

The S&P 500 rose 0.15% in a mixed market due to earnings.

Gold rose 0.8%, touching a fresh record amid tariff concerns.

Oil fell 2% after a report of a large U.S. stockpile build. Heading toward the close: EUR/USD +0.37%, USD/JPY -1.26%, GBP/USD +0.25%, AUD/USD +0.54%, =USD -0.5%, EUR/JPY -0.91%, GBP/JPY -1.03%, AUD/JPY -0.73%.(Editing by Burton Frierson Reporting by Robert Fullem)

• USD/JPY settles above 152.11 day's low as Trsy yields stay pressured

• Fed rate cuts odds notch higher after a soft ISM services, Fed comments

• Nearby resist. is 200-DMA and 100-DMA at 152.73-80 and 153.37 cloud bottom

• Prior 151.92-94 double-top from Oct 2022 and Nov. 2023 is support

• A 38.2% Fibo retracement of Sept. to Jan run higher is eyed at 151.50

• Nikkei reported Trump, Ishiba meeting to empashize strong relations

• Crosses lower on rising expectations of BOJ hikes, cuts elsewhere

• Tokyo to eye current acocount data, weekly MOF flows

• BOJ board member Tamura Naoki also slated to speak
yen

(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

Synopsis:

Goldman Sachs forecasts 190k payroll growth (vs. 170k consensus) in the January jobs report, with significant revisions to past data due to immigration-related adjustments. The unemployment rate is expected to remain at 4.1%, while average hourly earnings (AHE) should rise 0.3% m/m.

Key Points:

1. Payroll Growth & Weather Impact

   • Payrolls forecast: +190k (above consensus).
   • LA wildfires and colder weather expected to subtract ~40k from the headline number.

2. Wages & Labor Market Indicators

   • Unemployment rate steady at 4.1%.
   • Average hourly earnings (AHE) expected to rise 0.3% m/m.

3. Major Data Revisions Expected

   • Benchmark revisions could reduce cumulative job growth by 818k (Apr 2023 - Mar 2024).
   • Goldman estimates 300-500k unauthorized immigrants will be inaccurately removed from payroll records, making the downward revision misleading.

4. Household Survey Adjustments

   • Revised immigration estimates will add 3.5mn to the US population.
   • Household employment expected to increase by 2.3mn.
   • Labor force participation rate could rise by 0.11pp, while unemployment ticks up 0.04pp due to composition effects.

Conclusion:

Goldman Sachs expects a strong jobs report, but the key focus will be on large revisions to employment data due to adjustments in immigration estimates and state records. Despite potential headline payroll losses from revisions, the underlying labor market remains solid.

• USD/JPY sets new day's low of 152.11 as Trsy yields drop after ISM services

• Pair is below 200-DMA and 100-DMA at 152.73-80 and 153.37 cloud bottom

• Downward momentum to persist if stays beneath lower Bollinger at 153.56

• Vols rise, skews shift in yen's favor with 3-mo. at 1.6% bid for yen calls

• Supp. is prior 151.92-94 double-top, latter linked to Oct 2022 intervention

• A 38.2% Fibo retracement of Sept. to Jan run higher is near 151.50

• Yen advances as rate cuts, tariffs weigh on other currencies

• Nikkei reports Trump, Ishiba meeting to empashize strong relations

• Historically, USD/JPY turbulence in February is to be expected
yen

(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

Synopsis:

SocGen sees selling EUR/JPY as the best short-term trade, given the divergence in Eurozone vs. Japan growth expectations. While USD/JPY remains strongly correlated to 10-year US yields, the broader JPY strength case is intact as US equities soften and Treasury yields edge lower.

Key Points:

1. Strong Correlation Between USD/JPY & US Yields

   • USD/JPY has maintained a tight correlation with 10-year US yields.
   • Relative growth expectations now matter more than relative rates.

2. EUR/JPY Disconnect from Fundamentals

   • Eurozone growth expectations are deteriorating relative to Japan.
   • Despite this, EUR/JPY is trading at the same level as a year ago, creating a misalignment.

3. Short-Term Trading Strategy

   • Given weak Eurozone growth expectations and Japan's improving outlook, the best trade now is to short EUR/JPY.
   • The market may soon adjust to reflect the economic divergence between the Eurozone and Japan.

Conclusion:

SocGen recommends selling EUR/JPY as a short-term trade, citing the striking deterioration in Eurozone growth expectations versus Japan. Even if US yields remain rangebound, JPY strength should persist, making EUR/JPY a prime short candidate

Sterling rose above its 55-DMA at 1.2510 and recent trend high at 1.2523 in Wednesday trade, driven by unwinding dollar longs following recent U.S. tariff deescalation, though the pound's current bid may be short-lived as attention shifts to monetary policy ahead of Thursday's BoE rate decision and Friday's U.S. payrolls data. Ahead of President Trump’s Feb. 1 tariff deadline, sterling selling intensified, flipping the IMM position to negative. GBP/USD weakened even though the UK was not a primary target. Adding pressure was the expectation of a dovish BoE cut. LSEG’s IRPR projects the Fed's overnight rate at 4.01% by end-2025, slightly higher than the BoE's 3.9%. While both central banks are expected to end 2025 with near identical policy rates, STIR futures suggest slightly different paths in the near-term, with the Fed's next cut expected in June or July, and the BoE is seen cutting twice by its June 19 MPC meeting.

With rates and inflation back in focus, Thursday's BoE rate decision and Friday's U.S. payrolls data will be closely watched for clues at any shift in the current rate stasis. In the absence of a policy or data surprise, resistance at 1.2571, the 50% Fib of 1.3043-1.21, and the daily cloud base at 1.2594 may cap further gains.
GBP Chart:

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

Synopsis:

While Trump’s tariff threats against the EU are seen as an opening gambit for negotiations, the risk of escalation remains. Credit Agricole argues that many trade-related negatives are already priced into EUR/USD, and relative fundamentals could gain more importance in the near term.

Key Points:

1. Trump’s Tariff Threats Against the EU

   • The US has singled out the EU as a potential next target for tariffs after Canada, Mexico, and China.
   • European leaders have signaled willingness to negotiate but have also promised retaliation if tariffs are imposed.
   • Markets may discount Trump’s threats as a negotiation tactic, but risks remain.

2. Trade War Fears Already Priced In

   • Given recent market reactions, Trump-related EUR negatives may already be largely reflected in EUR/USD levels.
   • The EUR has been under pressure amid trade concerns, weakening economic data, and ECB easing expectations.

3. Shift Toward Fundamental Drivers

   • With much of the trade risk priced in, relative EUR-USD fundamentals may take over as the primary FX driver in the near term.
   • Factors such as ECB policy divergence with the Fed, Eurozone growth, and US inflation outlook could become more critical.

Conclusion:

Credit Agricole sees EUR/USD downside risks from trade tensions as largely priced in but warns that relative fundamentals will now play a bigger role in driving the pair. The ECB’s stance, EU economic data, and Fed policy expectations will likely dictate the next move in EUR/USD.

• EUR/USD Option volatility and downside strike risk premiums revert lower

• Benchmark 1-month EUR/USD implied volatility 9.0 to 7.9 since Monday

• 3-month 7.7 from 8.4 and 1-year trades 7.6 on Wednesday from 7.9 on Monday

• 1-month risk reversals halve to 0.6 EUR puts over calls, 3-month 1.3 to 0.9

• Dealers also report paring of many short term expiry downside defence trades

• Huge 1.0400-50 strike expiry zone might help contain FX for now
EUR/USD FXO implied volatility


EUR/USD FXO risk reversals


EUR/USD FX option strikes expiring Feb 5-14

(Richard Pace is a Reuters market analyst. The views expressed are his own)