USDJPY – Japanese yen breaches 112, U.S consumer inflation misses forecast

After five straight winning sessions, USD/JPY is unchanged on Thursday. In North American trade, the pair is trading at 112.26, down 0.01% on the day. On the release front, Japanese 30-year bonds posted a yield of 0.90%, its highest since February 2017. In the U.S, key indicators disappointed, as CPI and jobless reports missed their estimates. On Friday, the U.S releases a key consumer confidence gauge, UoM Consumer Sentiment.

U.S. consumer inflation numbers were soft in September, as CPI and Core CPI both posted small gains of 0.1%, shy of the estimate of 0.2%. On a year-to-year basis, CPI increased 2.3% in September, down from 2.7% in August. Still, with inflation above the Fed’s 2% inflation target, these readings will not affect the Fed’s plans to raise interest rates in December, which would mark the fourth rate increase this year. The likelihood of a rate hike remains high, with the CME pegging the odds at 76%. On the employment front, unemployment claims climbed to 214 thousand, higher than the estimate of 207 thousand.

As bonds yields continuing to rise, investors have reacted negatively and stock markets continue to spin lower. Risk appetite is considerably lower this week, and nervous investors have snapped up the Japanese yen, a reliable safe haven in times of crisis. The yen has posted five straight winning sessions and has gained 1.9% since Friday. Earlier this week, the IMF released a report in which it lowered its global growth forecasts. The IMF revised its growth forecast downwards to 3.7% for 2018 and 2019, down from 3.9% in April. The IMF took note of the trade war between the U.S and its major trading partners, adding that the downward revisions were most notable in emerging countries such as Turkey and Brazil. However, Japan received a better report card from the IMF, which revised upwards its growth forecast for Japan to 1.1%, compared to 1.0% in April.

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USD/JPY Fundamentals

• 23:35 Japanese 30-year Bond Auction. Estimate 0.90/3.9

• 8:30 US CPI. Estimate 0.2%. Actual o.1%

• 8:30 US Core CPI. Estimate 0.2%. Actual 0.1%

• 8:30 US Unemployment Claims. Estimate 207K. Actual 214K

• 10:30 US Natural Gas Storage. Estimate 87B

• 11:00 US Crude Oil Inventories. Estimate 2.3M

• 13:01 US 30-year Bond Auction

• Tentative – US Treasury Currency Report

• 19:50 Japanese M2 Money Stock. Estimate 2.9%

• 8:30 US Import Prices. Estimate 0.3%

• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 100.4

• 10:00 US Preliminary UoM Inflation Expectations

• 12:30 US FOMC Member Raphael Bostic Speaks

• 12th-18th US Federal Budget Balance. Estimate 71.0B

• 10:30 US FOMC Member Randal Quarles Speaks

Open: 112.26 High: 112.41 Low: 111.97 Close: 112.32

USD/JPY Technical

USD/JPY ticked lower in the Asian session and recovered in European trade. The pair is showing limited movement in North American trade

• 112.30 is fluid. Currently, it is a weak support level

• 113.75 is the next resistance line

Further levels in both directions:

• Below: 112.30, 111.22 and 110.28

• Above: 113.75, 114.73, 115.51 and 116.87

• Current range: 112.30 to 113.75