Yesterday, Wall Street managed to close nearly almost unchanged after early trading was marked yet again by risk aversion. In currencies, the episode saw the Japanese yen playing its traditional role as the safe-haven currency of choice on signs of global risk deleveraging, with key support coming into view for USDJPY.
Another weak session for Italian BTPs yesterday, and EURUSD mulled a more profound break of 1.1500 before pulling back toward that magnetic level of the moment in later trading. Today, Italian lawmakers will debate the proposed budget as German-Italian 10-year yield spreads are stretched to the widest for the cycle at around 300 basis points.
Yesterday saw the Japanese yen more clearly playing its traditional role as safe haven currency as global equities were under pressure for a third session in a row before New York managed to claw back most of the intraday losses into the close. USDJPY more or less survived the 113.00 area pivot, but EURJPY showed signs of breaking down with the move below the 131.00 area pivot zone and 200-day moving average. In light of recent market action, whether JPY crosses fully break down here or survive for now may be more linked to global risk appetite more than the direction in bond yields – a shift from previous behaviour.
Late yesterday, the focus was on USDCNY trading up against the highs for this part of the cycle above 6.90 and the report that China’s reserves saw a surprise drop in September of some $18 billion, versus a small rise expected. The renminbi is ready to seize global markets’ undivided attention if China allows USDCNY to drift above 6.95-7.00.
USDJPY having a look lower on the risk-off move yesterday, but that move found support as equities found support and bonds sold off again. We’re still curious whether the yen could actually outperform in a rising yields/wobbly risk appetite market if the market attacks the BoJ’s cap on the 10-year JGB- something it is already doing as it trades at 16 bps this morning. The 113.00 area is the local pivot zone with more profound breakdown levels down toward 111.00 and lower.