Asia open: FX market still on intervention watch
Chinese stocks kicked off the week on a strong note, reaching a six-month high fueled by improved sentiment in the property sector. And a pullback in US bond yields overnight should have local traders looking to add risk, especially with the FOMC unlikely to out-hawk the market later this week.
Asian foreign exchange traders will be particularly attentive to any signs of Japanese intervention on Tuesday, following reports of Tokyo's involvement in the market on Monday. This intervention action propelled the yen upward from its 34-year low of 160 per dollar, setting off shockwaves of volatility.
Market participants will closely monitor any further statements from Japanese officials at this juncture to determine whether this intervention will constitute an ongoing intervention regimen
There's a historical tendency in FX markets to fade the JPY intervention rally and test officials' resolve although the recent 160 USD/JPY highs could be a bridge too far.
If historical patterns repeat themselves, similar to what occurred on September 22, 2022, USD/JPY is likely to experience significant volatility throughout the next few trading sessions.
However, the currency pair may eventually stabilize around the 155-157 range but much of that will be determined by what happens to US bond yields.
Keep in mind this week is packed with significant US high-risk events, including a potentially hawkish Federal Reserve and robust US economic data. Such developments could push the US dollar higher this week.
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
