Forex - USD/JPY Flows: Broke above 110 but looks difficult to hold

 00:16 (GMT) 14 Jan

  [Forex Flows]

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USD/JPY Flows: Broke above 110 but looks difficult to hold (0101-QGDR-C01)

USD/JPY rose to the highest since May, now above the 110 mark. There are no fundamental triggers for the extension of Monday's rally. E-minis extends higher early in Asia as US-China story looks to be brightening and thus provide USD/JPY with some basis to reach higher.
Japan trading centres reopen following the long weekend, and likely also helped the yen weakness as we have seen during the resumption following the week-long holiday in Japan at the start of the year. This could be partly attributed to yen selling pressure amid outgoing portfolio and FDI flows.

USD/JPY Flows: Broke above 110 but looks difficult to hold (0101-QGDR-C02)

However, the case for further USD gains against the JPY looks weak if it is based mostly on the phase 1 trade deal being passed. The US employment report didn't justify any significant move in equities or bonds, but inasmuch as it was seen as a "golidilocks" release, may have encouraged buyers of the higher yielders on the basis of a further decline in volatility. Still, USD/JPY vol is actually little changed since Friday, and the post-Iran decline may have run its course. As with the equity risk premium, the ratio between then 3 month yield spread and 3 month USD/JPY vol suggests this current move is out of line, and is suggesting short term value around 109. 3 month vol would need to decline from currently around 5.1 to 4.6 to justify the current level of USD/JPY.

Forex - AUD/USD Flows: Small step higher on trade data beat, but imports fell

 00:40 (GMT) 09 Jan

 [Forex Flows]

AUD/USD inches higher after a strong beat on trade surplus. Even though exports rose in November, imports fell and again suggesting weakness domestically. AUD/USD found support at 0.6850 on Wed and is likely to consolidate between 0.6850-0.69 today with focus on tomorrow's retail sales data as risk sentiment stabilises and likely to modestly improve as the worst-feared scenarios from the ME tension looks unlikely now following measured approaches seen on Wednesday.
January has tended to be a good month for the CNY, perhaps seasonal demand before Lunar New Year playing a key role. That should help the AUD to stabilise after a rough start to the year which might be attributed to the sharp rally in December. The key focus this month for AUD will be on the employment report due later this month.

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