Saxo's Chanana on Yen Intervention, US Dollar Strength

We already saw FX markets sort of volatile on Friday afternoons. It seems to be the case that they go a little bit wild these days, but this really sent some of them into a tailspin. Can that get dialed back? It seems like, you know, a lot of those moves have actually been dialed back. But the one that I would actually be looking for, you know to dial back further would be certainly the move that we saw in Japanese yen. You know, Japanese yen has not been behaving as a safe haven asset and anymore, especially when you consider geopolitical risks, right. Because if these geopolitical risks were really to escalate, we would be here again talking about the fact that US inflation could continue to go higher and you know, the possibility of Fed rate hikes coming back to the table also in a big way, which means that both actually the US Treasuries as well as the Japanese yen cannot be a safe haven in this scenario. So that’s a move that I think could continue to unwind further. But the moves in particularly the Swiss franc would be the one, you know, where safe haven behavior can continue if at all these risks were to come back again in the headlines, right. It’s interesting what you say that, you know, some of those traditional safe haven assets can’t be safe havens anymore. But beyond the Swiss franc, what what will become the safe haven? I was actually quite surprised when these headlines around Israelis attack hit to see that the reaction from the very oil dependent Naki, the Norwegian Krona was pretty subdued. So I think that’s one place where you know we could see some more of a reaction and particularly if we were to expect any kind of retaliation from Iran. Certainly you know, the downplay of this whole situation that we’ve been seeing from Iran, it could, it could mean two things. One that they don’t want to retaliate. I think that’s the higher probability outcome, but also there’s a low probability assumption here that they could have had some serious damage which they are trying to cover here. And I think we really need to wait for any videos to kind of uncover there. And if that is the case, if there is any strong rhetoric coming out of Iran and that kind of threatens oil supplies, I would expect a greater reaction particularly from Noki, but also to some extent extent from the Canadian dollar, from the Canadian dollar. Fascinating. the US dollar index, does it continue to strengthen Charo and how much pressure is that going to continue putting on EM currencies tremendously. I mean U.S. dollar has so many legs to support it, you know, right from this increasing hawkishness that keeps coming through from the Fed, from the US economic data. So, so far I think the story around the Fed was to push out the rate cuts from this year’s expectations in the Fed curve. But I think last night again in the US that story turned a little bit further with with Feds member Williams kind of saying that there’s also potentially a tail risk of a rate hike this year and he’s one of the more respected members of the Fed committee, right. So I think that is an increasing level of hawkishness, which is yet not priced in into the Fed curve. So I don’t see that ending anytime soon. If more of those Fed members kind of you know start to highlight that as a tail risk that continues to lag, lend some support to the US dollar along with you know this risk of environment that we are seeing in the equity market as well. Because you know the AI enthusiasm that we’ve seen for a very, very long time now that’s kind of cooling all we we you know we saw ASML earnings this week and NTSMC last night kind of pruning its outlook as well. There’s certainly going to be some outperformance in the AI space, but it seems like that broad AI sentiment is starting to cool down a little bit, which again means this risk of environment in the equities could extend further and also lend some more support to the US dollar. Sorry, we have the N out 15441. How much can Japan policymakers take of this weakness? And I mean it doesn’t ultimately help them in some ways. So we’ve seen 152 break very easily there and this move above 154 now is you know some kind of a more strong you know defense coming out. And especially when you know, we’ve seen headlines around Korea joining, you know, Japan in light of the weakness in the EM currencies as well and kind of a nod from Janet Yellen as well saying that, you know, she might be a little bit more tolerant of Japan’s intervention. At this point. I think there is a reason to believe that one 55156 could be the next line in sand. But certainly I think Japanese authorities would be quite weary of intervening in an environment where you know, dollar is in such a strong position, US yields continue to rise because any amount of money they spend on intervention here will prove, you know, to be a failure and ineffective. So they really need to wait for the right time. I think next week is quite critical in that sense because we up the Bank of Japan meeting on Friday and they are kind of laying the ground for a hawkish narrative in that meeting saying that a weak yen is fueling inflation concerns and things like that. So if that narrative is going to come out of that Friday’s meeting, I think you know any intervention could be a little bit more effective with that kind of a narrative. So I think next week is pretty critical for where the yen goes.