USD/JPY losing bullish commitments to fresh 105.80 low

USD/JPY is currently trading at 105.83 as the yen extends its advance vs the greenback to a low of 105.80, taking out the late New York lows.

The US dollar was losing ground in the New York session as markets move away from the risk associated with the forthcoming Jackson Hole and key-note speech from the Fed's Chair Jerome Powell scheduled for 14.10GMT. More on that below.

Meanwhile, as for data, the US durable goods orders rose +11.2% in July (est. +4.7%MoM, prior 7.7%`MoM), playing second fiddle to the risk sentiment associated to central bankers later today,

Nevertheless, the data was boosted by a 22% jump in orders for motor vehicles and part while the ex-transport rise measure was more subdued at +2.4%MoM (est. +2.0%MoM prior revised to +4.0%m/m from initial +3.6%m MoM.  

Overall, the data is positive news for the sustainability of the recovery. Also during the session, there were comments from the Fed’s George and Barkin.

Disinflationary pressures, as well as the uncertainty over the path of COVID-19 and the recovery, were the major themes as a prelude to the Jackson Hole later today.

China Sea on the backburner for now

Meanwhile, the risk mood was positive as markets looked through continued tensions between the US and China overnight, with China firing two missiles in the South China Sea as part of military drills.

This may well be a theme that is returned to quite quickly, especially is tensions increase further following the US strengthening sanctions on companies seen as supporting China to “reclaim and militarize disputed outposts”, according to the US Department of Commerce.

Instead, for the tie being, investors betting on the large-cap companies on Wall Street to continue to higher, bolstered by the stimulus, brings us nicely to the Jackson Hole preview and an event which has kept risk appetite buoyant.

The Jackson Hole

The Fed’s policy framework which is due to be the core of Powell’s keynote symposium speech is what markets will be tuning in for.

Powell’s speech which begins the annual Kansas City Fed economic symposium. His speech is titled “Monetary Policy Framework Review” (11:10pm Syd/9:10pm Sing), or 14.10GMT.

Analysts at ANZ bank explained that the market is looking to see whether and how policy tools might be adapted to achieve an average inflation target which has so far been open to speculation. 

''For example'', the analysts say, ''QE could become conditional on macro and inflation developments, or date dependent. But the upshot is: adapting an average inflation target would be seen as undoubtedly dovish, meaning looser monetary policy for longer.''

An average inflation target would mean that the Fed would be willing to tolerate an overshoot in inflation to make up for an undershoot that had occurred over a certain (limited) period of time. 

In the current environment, this would anchor inflation expectations, lower real interest rates, and lead to the policy being expansionary for longer than otherwise.  

Therefore, the analysts have clearly described what is positive for risk and negative for the dollar. 

USD/JPY levels