USD/JPY: Bulls taking on fresh highs at 108.20 in Tokyo open

Overnight, USD/JPY initially dipped to 107.52 as US yields fell after the European Central Bank's announcements but then recovered as risk sentiment improved and has rallied to score yet another six-week high at 108.20 in Asia today. USD/JPY is currently trading at 108.16 having risen from a low of 108.05 to the 108.20 aforementioned high, +0.06% on the day so far. 

Overnight, the dollar failed to really make the most of the US Consumer Price Index result, the highest in ten years, but the DXY remains within the 98 handle and within the highest ranges since 2017. The problem is, despite the annual rate moving up to 2.4%YoY, the highest reading since September 2008, the inflation pressures are building just at the time the economy is showing signs of slowing and given the growth story, the markets expect yet another 25bp rate cut from the Fed next week. 

US yields supporting USD/JPY higher

The US 2-year Treasury yields are, however, 4bp higher at 1.72%, while the 10's gained 5bp to 1.80% which lifted USD/JPY -  "Markets are pricing 24bp of easing at the 19 September Fed meeting, and a terminal rate of 1.21% (Fed funds rate currently 2.13%)," analysts at Westpac noted. 

Meanwhile, there is talk on the grapevine of an interim trade deal being put together by US and Chinese officials. Analysts at Westpac have the story:

"Bloomberg released a “sources” story claiming that the US administration was considering an interim trade deal with China that would either freeze or even roll back US tariffs, in particular avoiding the tariffs due to hit consumer goods in December. This produced a bounce in US stocks and risk currencies but <1 hour later, a “senior administration official” told CNBC that such a deal was “absolutely not” being considered."

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet explained that the USD/JPY the 4 hours chart, the pair remains in the bullish path, as despite lacking directional strength, technical indicators hold within overbought levels:

"In the mentioned chart, the 20 SMA maintains its bullish slope above the larger ones, providing a dynamic support. Furthermore, the pair is developing above the 61.8% retracement of its August decline, now a critical support at 107.45. As long as it holds above it, the pair has room to extend gains up to 109.31, August monthly high."