- USD/JPY is whipsawed in the open if tokyo.
- Volatility is high as traders try to second-guess the central banks.
USD/JPY was under pressure to start the Tokyo session, whipsawed between highs and lows as the day began. The pair has emerged as a candidate for intervention from the Bank of Japan which could be a factor in the volatility at the start of the day as Japan returns from a day's holiday. At the time of writing, USD/JPY is trading at 145.71, near the Tokyo open high of 145.74 and has printed a session low of 145.54 so far.
It has been a volatile start to the week as indicated by the stock markets with the MSCI global index losing ground while the US dollar gained slightly with US yields skyrocketing. Investors are nervous about both US data and the start of corporate earnings season. Interest rates and further signs of economic weakness in the weekend's release of Chinese Services have sent markets into flux this week so far ahead of the start of the third-quarter earnings season on Friday. US Consumer Price Index and the Fed's minutes will be key along with US Retail Sales, all of which will likely impact Us yields and the value of USD/JPY considering the yield differentials.
On Monday, the yield on the 10-year US Treasury bond has made a high of 3.992%, surging in the last hour in what might be the last-ditch effort to breach the psychological 4.00% level having already cleared the prior week's highs. The next target beyond there is last month's high of 4.019%. In turn, the DXY index, a measure of the greenback vs a basket of currencies touch a high of 113.333 after climbing from a low of 112.621. however, it is tinkering on the edge in Tokay, as it hovers over both Friday's and last week's highs.
Meanwhile, It is worth noting that, speculators’ net long USD index positions recovered ground for the second consecutive week following a string of hawkish Fed speak. However, net longs remained below recent averages which leaves room for further upside in the greenback.
As for Fed speakers on Monday, Fed Vice Chair Lael Brainard said tighter US monetary policy had begun to be felt in an economy that may be slowing faster than expected, but that the full interest rate increases would not be apparent for months. fed's Charles Evans said that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate, as reported by Reuters.
Fed fund futures are now pricing in a 92% chance of a 75-basis-point hike at the next Fed meeting. Higher interest rates increase the opportunity cost of holding zero-yield bullion.
the key event for the week will be with the inflation report and the analysts at TD Securities explained that '' the September dot plot revealed a higher-than-expected Fed Funds terminal rate of 4.625%, with a fairly even dot distribution around this level. The question is how much of this was reflected in the deliberations at the Sep meeting. The tone of these deliberations likely was more hawkish given core CPI inflation trends, upsetting the current dovish pivot markets narrative.''
Secondly, for CPI, the analysts said, ''core prices likely stayed strong in September, with the series registering another large 0.5% MoM gain. Shelter inflation likely remained strong, though we look for used vehicle prices to retreat sharply. Importantly, gas prices likely brought additional relief for the headline series again, declining by about 5% MoM. Our MoM forecasts imply 8.2%/6.6% YoY for total/core prices.''
USD/JPY technical analysis
USD/JPY is now embarking on the prior day's highs in the 145.80s. If the Bears hold the first, then there are significant risks of the capitulation of the bulls and the 145.30s will be eyed for the day ahead.