USD softening gathers pace after Trump accusations of calculated devaluation

JPY through 112.50, EUR 1.0800 and CAD below 1.3000. Volatile day for GBP, while NZD extends better levels ahead of NZ jobs report.

Month end flow was already shaping up to make Tuesday’s session a lively affair, but with president Trump firing off shots at China, Japan and Germany over currency ‘devaluations’, investor nervousness led to USD’s being offloaded at a rate of knots. EUR/USD was the first to react as Germany came under scrutiny first, with the spot rate moving up from circa 1.0700 towards 1.0750-60, before similar comments later in the day added fuel to the fire to send the pair up to and just past 1.0800. EU growth and inflation rates for Q4 also beat expectations by a modest amount – both up 1.8% yoy – to add to the EUR move.

USD/JPY was where the key risk lay however, as much of the USD position has gone through this rate since the late 2016 rally post US election. We have gone on to take out the 112.50 level, but anyone anticipating stops through here will have to wait for sub 111.45-50 and perhaps 110.00 for the larger amounts. With the North American pm session ahead and Asia yet to react, it is not looking promising, though Wall Street losses have been a little more modest today.

It was a lively one for GBP, as the month-end demand for EUR/GBP saw the cross rate rally through .8600, but the move was tempered by the price action in the USD rates which saw Cable rally harder than EUR/USD. Even so, plenty of selling interest from pre 1.2600, but this will get heavier the closer we get to the 1.2700-1.2800 area, which we cannot rule out under the current circumstances. Consumer credit in the UK saw notable deterioration, but ahead of the BoE meeting this week and the Brexit debate currently under way, this is of limited material consequence at presence.

In the commodity currencies, NZD continues to outperform, with the spot rate having worked through resistance above 0.7300, hitting a 0.7350, but NZ jobs ahead may see some moderation, though not necessarily against the AUD as the cross rate pushes lower towards 1.0320 key support. USD/CAD broke the base at 1.3000, with USD sales aided by a beat in Nov Canadian GDP (+0.4% vs 0.3% expected) which prompted a pick up in the selling. AUD/USD managed to tip 0.7600, but stops through 0.7625 remain intact as yet.