- USD/JPY consolidates the overnight rally on bullish trade talk headlines.
- A Bloomberg and a NY Times story turned sentiment more positive overnight.
USD/JPY is steady on Friday's Tokyo open, soaking up the last twenty-four hours of whipsaw price action in financial and commodity markets following conflicting trade talk headlines and weighing the positive outcomes. USD/JPY rose in a steady 1% climb from the lows of 106.93 to 108.02 overnight, despite the US Consumer Price Index (CPI) failing to impress. USD/JPY was, instead, supported by reduced safe-haven demand and rising US yields.
The US September headline CPI was flat month on month with ex-food and energy +0.1% for the same time frame and below the estimates of +0.1% and +0.2% respectively. Annual CPI remained at 1.7%, below the expected 1.8%, while ex-food and energy remaining at +2.4% (as expected).
Meanwhile, the focus stayed with trade talks and the barrage of headlines. A Bloomberg and a NY Times story flipped sentiment positive overnight, indicating that a partial deal would be in the making this week while suggesting an easing of restrictions on Huawei and possible delays to additional tariffs. President Donald Trump announced that he will meet Chinese Vice Premier Liu today, as previously planned. Liu met with top US trade negotiators, Steven Mnuchin and Robert Lighthizer, overnight which was the first time the two sides have met since July.
One eye on the Fed
Elsewhere, there was an eye kept on the Federal Reserve with Dallas Fed President Kaplan indicated that it can't be known of the extent of the US slowdown but added that rate cuts “should be limited, restrained and modest and not the start of a full-fledged cutting cycle.” Subsequently, the US 2-year Treasury yields climbed from 1.44% to 1.54%, while the 10-year yield rose from 1.56% to 1.67%. "Markets are pricing 18bp of easing at the 31 October meeting and a terminal rate of 1.04% (vs 1.88% currently)," analysts at Westpac noted.
Meanwhile, from a technical point of view, Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair is trading just shy of the 108.00 figure, retaining its positive short-term stance according to intraday technical readings:
"In the 4 hours chart, the pair has stabilized above all of its moving averages, the first time in over a week. Technical indicators, meanwhile, hold near overbought reading and at intraday highs, having lost just part of their bullish momentum. The pair has been rejected twice from the 108.46 price zone during September, with a steeper recovery expected if the level breaks above it."
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