USD/JPY, yields and DXY drop post mixed FOMC minutes, why?
|- USD/JPY: correlation to stocks breaks down post FOMC minutes.
- Inflationary pressures are a concern, Gold spikes while DXY and yields drop post FOMC minutes.
USD/JPY has dropped on the back of the hawkish FOMC minutes, although markets are concerned that some of the officials see an appreciable risk of inflation lag to target, despite all officials agreeing that the target should be met in 2018. Currently, USD/JPY is trading at 107.39, up 0.12% on the day, having posted a daily high at 107.92 and low at 107.24.
FOMC Minutes: officials saw an appreciable risk of inflation lag to target
Prior to the FOMC minutes, the USD retained its firmer tone despite the relatively benign comments from various Fed officials. The DXY has been on track for the 90 handle at the start of the US session but met headwinds there and was sent back a coupel of pips shy all the way down to below 89.80.
Nuts and bolts
US yields were also higher at the start of the session, but these too dropped back from 2.89% to 2.87% before rallying right up to 2.9060%, just shy of the YTD high of 2.9095%. Prior to the minutes, the equity market took solace from Fed comments and upward momentum in the February US Markit PMI with a supportive earnings backdrop. Stocks then cheered the minutes with a spike and broke the correlation to the yen that also rallied on a weaker greenback. Gold was an outright performer post the minutes, keeping in tune with the market's concerns for inflationary times ahead.
USD/JPY levels
USD/JPY's downside has stalled at the converging ascending 50 hr SMA and descending 200 hr SMA and has broken below the ascending channels support line. Technicals lean bearish again with price back below 107.50. A break to 107.05 and then 106.80 opens risk back to where option barriers were placed between105.00-104.00 guarding a retracement of the post-Trump rally to 101.95. On the flipside, we had that 107.67 Tenkan line and 107.80 proving to be a tough resistance guarding 108.00. On the wide, 110.85 is key ahead of and 111.44/50 as being a double Fibonacci retracement that is lining up with a lower and descending 200-D SMA at 111.39.
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