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They are watched from a distance by the drop in equities

Yesterday was a prominent example of the lack of contagion in the markets of the movements of the stock markets. The S & P 500 came to fall up to 4% yesterday and approaching the 200-day moving average and, however, the coins hardly responded to this movement. The JPY did correct in response, but remains within recent ranges and hardly mimics the degree of volatility in the stock markets.

Likewise, risk spreads have generally widened in sympathy with the rebound in equity market volatility, but we are still within the medium term range, both in credit margins and in emerging markets. In short, the stock markets are correcting, but other asset classes are simply observing with moderate concern, with no signs of general deleveraging.

One factor that may be preventing a stronger reaction in the currency markets is that the compensatory forces are acting on the US dollar , which makes it difficult to create a narrative on what to do with the currency. On the one hand, the risk-off may support the USD, since traders increased the speculative shorts in USD and generally rely on the dollar for its high liquidity. But, on the other hand, the reduction of interest rate expectations of the Federal Reserve (Fed) facilitates the focus on the liquidity concerns of the USD and erodes the carry advantage of the dollar.

On the other hand, bond traders may suffer the worst if stock markets calm down quickly and we still see fairly inflationary data outside the US. The ISM manufacturing data yesterday , one of the most followed inflation measures, reached its highest level in almost seven years. But the main focus will be on the average hourly earnings data from Friday to March after the February data has cooled slightly. In general, a return of appetite for risk and higher yields would put the dollar and especially the yen under short-term pressure again.


Despite the headline “The worst start of the second quarter since the Great Depression”, the USD / JPY has not even tested the 61.8% retracement of the Fibo after the rebound last week. In summary, despite having the most ideal conditions possible for the appreciation of the JPY yesterday, it barely responded weakly.

If this level remains intact and we do not see an increased risk of risk contagion in the next sessions, the JPY crosses may be in a significant consolidation, with the USD / JPY action perhaps a bit muted compared to the crossings of Higher beta, such as AUD / JPY , etc. Even so, the USD / JPY remains in a bearish trend unless it can fall back above 107.50-108.50, if not 110.00.

USD / JPY daily USD / JPY daily

Source: Saxo Bank

Main currencies

USD: We discussed the conflicting movements for the USD above, but we suspect that the easiest route for the dollar could be to the downside.

EUR : The EUR / USD has remained at an absurdly adjusted range since the end of January, somewhat surprising given the volatility in other pairs. Bulls need a confirmation above 1.2500.

JPY: The strength of the JPY is disappointing in relation to the backdrop, as we discussed earlier, so any relief in that context could lead to a notable weakness.

GBP: The pound maintains a low profile with the manufacturing PMI of the United Kingdom that will be known today: observe the lows below 0.8700 in the EUR / GBP . While in the GBP / USD the bulls need to be encouraged above 1.4000.

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