FX Board: JPY surges on weak risk appetite

Key developments in FX today

• A brutal start to 2016 in Asian equity markets saw the JPY surging stronger and USDJPY taking out the 120.35/00 support zone and falling close to the final support area between 118.50-118.00. Elsewhere, the JPY strength saw notable levels tested, including new lows since last April in EURJPY and a test of the lowest levels since 2014 in GBPJPY - at the critical 175.00 level.

• Elsewhere, the USD was mixed to weaker early in the day, with EURUSD attempting to rally back well above 1.0900 before falling sharply again later in the day ahead of key US data. This keeps the EURUSD in the tight 1.08-1.10 range that has corralled the action for the better part of a month - the FX board trending indicator has flipped back into negative territory, but we need to trade below the 1.0800 trigger area.

• The Aussie (AUD) and kiwi (NZD) were weaker on the risk off tone, with NZD getting the worst of it as NZDUSD bounced off the resistance zone ahead of the key late 2015 highs just below 0.6900.

• Gold and silver have surged in this environment - perhaps partially due to the risk off tone, but also possibly as the Chinese authorities allowed the yuan to weaken more sharply than usual on top of the rather large 3% move weaker in the currency since early November.

EURUSD

EURUSD tried to mount a rally today after solid manufacturing PMI's early today, but fell again as the German CPI estimate came in far below estimates. A month of range trading has taken the sting out of the shock rally from the December 3 ECB meeting-inspired rally. A fresh calendar year and a 1.0800 break may be enough to get the bears back in full swing, though we'll also likely need cooperative US data later this week as well.

USDJPY - weekly

The important 120.35/120.00 zone in USDJPY gave way on the intense risk-off overnight. This raises the risk of a 118.50/00 test, below which we have significant white space on the chart - 116.30 (major 38.2% Fibo), 113.30 (Ichimoku cloud of weekly) and then perhaps 110.40 (61.8% Fibo), though the last of these would likely require a dramatic further intensification of the weakness in risk appetite.

EURJPY - weekly

Important to note that EURJPY has dropped to new lows below the late 2015 lows, possibly opening up for a full test of the 2015 lows just above 126.00 and beyond. The weaker EUR in this environment versus the JPY and USD suggests that the potential for the single currency to rally on further position squaring may be exhausted for the cycle - though this theory would be challenged by weak US data through Friday.

NZDUSD

The kiwi has been the weakest of the traditional G10 currencies today on the risk off tone, and possibly due tot he unfair appreciation at the tail-end of 2015. If this environment extends, the currency could risk further weakness. Note that this sell-off has been launched from a key resistance area in NZDUSD just ahead of 0.6900 that will encourage the bearish outlook for at least a test of the range lows below 0.6500.