What will be interesting is that now it looks like we may see the yuan fall further to test the lows (highs for USD/CNY) from September 2019 and May 2020 close around the region of 7.15 to 7.18. A break above that will see the yuan fall to its lowest ever since China chose to abandon its old peg against the dollar and revalue the currency.

As much as markets might be focused on other major events and moves this week, the continued depreciation in the yuan is also a notable development that warrants attention. In turn, this just provides yet another tailwind for the dollar in the grand scheme of things.

Reuters posted this Thursday on the yen slump.

• But this week’s almost 3% drop, without any particular trigger, was enough for some funds to call time on the first leg of their wager that Japan would have to quit its policy of capping bond yields as its global peers push rates higher.
• “We think we are getting close to an inflection point of policy,” said BlueBay Asset Management chief investment officer Mark Dowding, especially as inflation starts to pick up.
• “We’re not shorting the yen anymore and we’re not long,” said Akshay Kamboj, co-chief investment officer at hedge fund Crawford Ventures.

But, what now?

• “Any sharp near-term move to the 142/143 would probably spark a much sharper verbal protest from Japanese authorities and put intervention back on the agenda”

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ING further note:

• “Shorter-dated implied option volatilities … still around the 12% area (vs 15%+ a few months ago) suggesting investors have downscaled fears over possible Japanese FX intervention to sell USD/JPY.
• While we all acknowledge that Japanese authorities would be trying to turn back the tide here (USD/JPY is above 140 for good macro reasons) we should not discount intervention completely”

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Note – The Bank of Japan conducts intervention in the yen on instructions from the Ministry of Finance. Hence, its worthwhile having regard to MoF officials on yen movements. At ForexLive we headline these, so you can stay informed. We have had such comments from the MoF (and the BOJ and other government departments/ministers) quite often in recent months, mostly when the yen depreciates sharply. if you’ve been following along you’ll have noted these. So far its been hot-air, just verbal ‘intervention’. A sign of impending actual intervention activity in the forex market will be more strident comments from Japanese officials and more explicit threats of yen buying. We’ll keep on top of these if/when they come.

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USD/JPY daily:

An ICYMI EUR/USD view from SG:

• As oil prices rose in the run-up to the GFC, both European and US terms of trade suffered, but this time around, the relative effect is completely different. From a US perspective, this highlights the positive impact on the dollar of rising energy prices; for the euro, it just highlights the scale of the challenge confronting the continent.
• I can’t see a significant rebound for any European currency until we get through the gas crisis.
• Our current forecasts look for EUR/USD to trough in Q3, in a 0.95-1.00 range, and while that level may be about right, it’s harder now, to see a bounce before the end of the year.