FX alert: Something in this tape doesn’t add up

This tape doesn’t add up

Something in this tape stinks in that very specific way FX traders recognize instantly—the scent of a market telling you one thing while doing another. Risk is bleeding across global equities ahead of Nvidia’s verdict, yet the yen—our traditional FX fire alarm in any equity downdraft—isn’t even flickering. When equities roll over this broadly, USD/JPY should be sinking like a stone; instead, it’s sitting there smugly on the bid as if the laws of cross-asset gravity have been suspended for the day.

This is a broad-based de-risking move: not a U.S. tech tantrum, not a single-market wobble, but an across-the-map fade that usually sends traders sprinting back into the yen’s arms. Instead, Japan’s currency is being held underwater by a toxic mix of soft domestic data, a fresh geopolitical spat with China, and the evergreen hedge-fund pastime of “let’s see where the MoF’s pain threshold really is.” Specs know the old routine—test intervention, study the reaction function, push again. Right now, the market senses tolerance somewhere closer to 160, and they’re happy to lean until proven otherwise.

Meanwhile, the dollar is feeding off the fear. High-beta currencies—AUD, NZD, NOK—are taking the shrapnel, while the USD laps up classic safe-haven flows. Layer on a modest but meaningful hawkish repricing at the front end—December cut odds now near 40%—and the greenback has both the risk and rates channels working in its favour. Fed speakers have rediscovered their cautious-hawkish posture at just the right moment to reinforce the move.

Tomorrow’s FOMC minutes won’t matter much because the real macro coin toss lands Thursday: the delayed September payrolls at 08:30 Washington. It’s the rates analogue to Nvidia’s verdict for equities—two cards that can flip this entire week’s regime. Until then, the USD stays buoyant as long as equities keep sliding.

But the euro is quietly playing a different game. EUR/USD might look sedated around 1.16, but several bank models now show it is no longer meaningfully undervalued versus fair value. In fact, this morning’s reading shows a roughly 0.8% undervaluation (according to ING models), and that small mispricing matters because it’s tilted asymmetrically to the topside heading into the U.S. data gauntlet. The single currency doesn’t need a heroic catalyst to grind higher—just a dollar that stops flexing. That’s why the 1.18 year-end target still feels right. December seasonality often hands the euro a subtle tailwind precisely when the market stops paying attention.

Still, the subplot everyone should be watching is the yen. This is the part of the tape that stops smelling right. Soft GDP, cooling inflation, geopolitical noise with China, tourism worries, doubts creeping into December BoJ hike odds—yes, those explain the drag. But none of that explains why the yen isn’t participating at all in a global equity washout. That divergence screams speculative flow, not macro.

My thought is that the MoF still prefers in its new regime to intervene only when the stars align—specifically after a USD-negative catalyst gives them cover. Absent that, they let the market walk the plank. And right now, that plank still looks like 158+. Until we get there—or until U.S. data cracks—the path of least resistance in USD/JPY remains higher.

Something isn’t smelling right because something isn’t behaving right. And in FX, misbehaviour is usually the tell before the turn.

But for today, the rules stay simple:
As long as the equity sell-off stays global, the dollar keeps the safe-haven crown—and the yen gets steamrolled by its own baggage.