USD/JPY surges higher beyond 160, Amazon hits highs

Headlines

* Japan’s Kanda says watching yen with high level of urgency

* ECB is set to start next strategy review after summer break

* EUR/USD extends losses below 1.07 as USD stretches higher

* Gold falls to tow-week low as higher yields and dollar dent appeal

FX: USD broke to the upside taking the index to levels last seen at the start of May. Bulls will eye up the year-to-date top at 106.51 from mid-April. Bond yields rallied with the 10-year hitting 4.32%, just below a long-term level.

EUR fell for a second day with a low at 1.0666. That’s a pip below the recent June bottom at 1.0667. We had dovish comments from ECB member Rehn. He said market expectations for two more ECB rate cuts are “reasonable”.

GBP’s made fresh cycle lows at 1.2615, last seen in mid-May. Cable prices also fell below the 50-day SMA at 1.2636. Next support is the midpoint of the April to June move at 1.2579.

USD/JPY surged higher as the yen sank to a fresh 37-year low. The move higher in the 10-year US Treasury helped spur dollar demand.

AUD pushed up to 0.6688 before paring gains. Inflation was hotter than expected at six-month highs, lifting the chances of a rate hike to around a coin toss at the September RBA meeting. CAD got sold into with USD/CAD higher and above the 50-day SMA at 1.3687.  

US Stocks: Equity indices made marginal gains as a last minute rally helped stocks into the green. The S&P 500 added 0.16% to 5,478. The Nasdaq 100 settled up 0.25% at 19,751. The Dow closed higher by 0.04% at 39,128. The majority of sectors were in the red with the equal-weighted benchmark S&P 500 lower. Outperformance in Tesla and Amazon helped the indices. The latter topped the $2 trillion market cap marker. Fedex shares were the biggest gainers, jumping 16%. The parcel delivery company reported after the bell on Tuesday and provided upbeat earnings for fiscal 2025 with cost-reduction measures helping spur a fourth quarter beat.

Asian stock futures are in the red. Asian stocks were mixed after similar performance on Wall Street. The ASX 200 struggled with the hot CPI data not helping.  The Nikkei 225 outperformed, helped by yen weakness and boosted by tech. The Hang Seng stayed above 18,000, while the mainland was muted.

Gold sunk close to recent lows as the dollar and bond yields advanced higher. The May low at $2277 is strong support.  

Day Ahead – US Presidential TV Debate

The first of two TV debates between President Biden and challenger Donald Trump is scheduled to be on CNN at 21:00 ET on Thursday. A recent Fox poll revealed Biden has overtaken Trump for the first time since October. That said, an Ipsos poll finds that Trump would beat Biden 37% to 35% overall in the seven key swing states.

In terms of the market impact, focus is on the impact that higher tariffs could have on growth, inflation, and interest rates. Most of Trump’s major policy initiatives are likely to be inflationary. He wants to narrow the US trade deficit, which will be done by tariffs, especially on China or a dollar devaluation. But this could in turn mean a higher USD and inflation. There might also be an impact on the labour market. Many argue that higher immigration is the potential explanation for the strength and resilience seen in US labour market data.

Chart of the day  – USD/JPY push boosts intervention risk

Markets are testing the nerves of Japanese authorities which spent big on intervention in April and May when prices spiked to 160.20. Near 38-year lows for the yen are keeping markets on alert for any signs of intervention. Japan’s top currency diplomat Kanda warned on excessive currency moves saying authorities were “seriously concerned and on high alert”.

Unilateral intervention has historically struggled to markedly turn the trend. Only US monetary policy and rate cuts would change the direction of travel with BoJ hiking rates aggressively to narrow interest rate differentials. Japanese authorities will at least want to instil some two-way price action into the major. The April 1990 top was 160.40.