The US dollar has made a gain from the yesterday fall off during early Asian session and changed the potential previous day’s profitable slide from the tops of many years. The reason behind the extend is the kneejerk reaction to the unexpected uptick in the US Consumer Price Index (CPI). Yesterday U.S. dollar saw truculent selling and wiped out its weekly gains for more than 13 months amid a post-US CBI slump in the long-dated U.S. Treasury bond. The U.S. CPI headline in September rose 0.4% to 0.3% and raised the annual rate to 5.4%, again beating expectations for a 5.3% reading. However, investors seem to be linked to the central bank’s interim inflation story, which has dragged down US bond yields.
US CPI report also reconfirmed market expectations for a possible interest rate hike in 2022. Also, the minutes of the latest FOMC monetary policy meeting in September showed that the US Federal Reserve is on track to begin its bond purchases later this year. Apart from this, a moderate rebound in US bond yields acted as a valve for the greenback, helping the USD / JPY pair regain some positive traction on today.
Minutes from last month’s Federal Reserve meeting showed policymakers’ growing concern about inflation and a general agreement to start tapering asset purchases soon. Traders responded by bringing forward rate-hike expectations but lowering the projected peak. Fed Funds futures pulled forward the first hike from late in 2022 to almost fully price a 25 basis point hike by September, but pricing also suggests rates hovering around just 1.5% in five years’ time. Generally positive tone around equity markets undermined the Japanese Yen safe haven and was seen as another factor supporting the USD / JPY pair.
Today markets are awaiting U.S. producer prices as today is Thursday and jobless claims figures as well as appearances from Bank of England and Federal Reserve policymakers and the regular weekly initial jobless claim data release. This, along with US bond yields, will affect USD price dynamics. Traders may take notes from the broader market risk sense for some short-term opportunities around the USD / JPY pair.
USD/JPY 4 Hours Chart:
Support: 113.04 (S1), 112.82 (S2), 112.44 (S3).
Resistance: 113.63 (R1), 114.01 (R2), 114.23 (R3).
Amidst these above catalysts the US dollar is strong which keeps the USD/JPY into safe zone today. We expect a bullish trend for USD/JPY.
