Three significant developments have emerged. Initially, Japan’s Prime Minister Takaichi guided the LDP to a significant victory, achieving a 2/3 “super majority.” This outcome is perceived as a strong mandate, presenting a chance to amend the constitution. Despite the sale of JGBs and the purchase of Japanese equities, following some initial volatility, the yen has surprisingly strengthened, contrary to many expectations. Second, Chinese officials have recently taken steps to dissuade financial institutions from increasing their purchases of Treasuries. It appears that the justification was based on risk management considerations rather than geopolitical factors. It is possible that this has commenced in recent weeks rather than just the last few days. Third, the resignation of UK Prime Minister Starmer’s chief of staff regarding the Mandelson appointment has occurred, yet it remains uncertain whether this development has alleviated the pressure on Starmer.

The US dollar has declined against all G10 currencies, with the Australian and New Zealand dollars leading the way, despite Australia releasing disappointing household spending figures. Although the daily momentum indicators appear to support the greenback, the price action leading into the weekend raises some doubts. The response of American investors to Beijing’s actions could influence the outlook as we approach a busy calendar of economic reports in the days ahead. As the weekend approached, the euro fluctuated around the prior day’s range but ultimately closed beneath its peak. The 1.1765 area tested before the weekend represented a retracement target of the rally from the second half of last month. It weakened to $1.1825 ahead of the weekend. Today’s follow-through buying has propelled it to $1.1870. The primary retracement target for the drop that began from the January 27 peak (~$1.2080) is approximately $1.1885, followed by the subsequent target at about $1.1925.

The dollar solidified its position ahead of Sunday’s election, maintaining its strongest level against the yen since the Fed’s “rate check” on January 23. It maintained a position above JPY156.50 as the weekend approached and remained relatively stable, not deviating more than 20 ticks from JPY157.00 during the North American session. The decisive win for Takaichi’s LDP had an immediate impact on the yen, which subsequently managed to recover completely. The asset has experienced a broad trading range that reflects the price movements observed in the last two sessions: ~JPY156.20-JPY157.75. A decline beneath last Friday’s low would suggest adverse consequences for the greenback. Sterling initially deepened its post-BOE losses to approximately $1.3510 before the weekend, subsequently rebounding to around $1.3625. It established a strong position. Nearby resistance is identified in the $1.3650-65 range. The current trading range is approximately $1.3585 to $1.3640 today. A key question to start the week is whether the resignation of the chief of staff to the prime minister is sufficient to relieve Starmer of the pressure he has come under, or whether it will lead to relieving Starmer of his job. Speculation arises regarding the potential resignation threats from other cabinet ministers. Additionally, we have the upcoming special election scheduled for later this month, followed by the local elections in the Spring.

The US dollar exhibited a bearish outside down day against the Canadian dollar, trading on both sides of the prior session’s range and ultimately closing beneath its low. In the pre-weekend setback, the US dollar declined to approximately CAD1.3625, aligning with a retracement (38.2%) target of this month’s gains. Today, there has been a lack of follow-through selling, with the greenback stabilizing within the range of approximately CAD1.3635 to CAD1.3685. The upcoming retracement is positioned around CAD1.36, with the subsequent level near CAD1.3575. The Australian dollar demonstrated a strong bullish outside up day against the greenback as the weekend approached. It was driven down past $0.6900 for the first time since January 26. The asset subsequently experienced a modest recovery, reaching $0.7025. It reached $0.7045 today before experiencing a pause. Last week’s peak, following the central bank increase, was $0.7050, whereas the high from late January was just below $0.7100.