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USD/JPY pops back into intervention territory at a session high

  • USD/JPY is attempting to score fresh cycle highs, but verbal intervention is already underway. 
  • The US dollar is reaching resistance following a fresh move into the greenback on the back of US CPI. 

USD/JPY has printed a session high in the Tokyo open but remains near to flat on the day following a strong recovery in the US session due to an unexpected beat in the critical US inflation data. The US dollar rallied against the yen with the market pricing in a hawkish for longer Federal Reserve. At the time of writing, USD/JPY is trading at 144.43 but is volatile for the day so far having already travelled between a low of 144.06 and a high of 144.96.

The Labor Department reported on US Consumer Prices that unexpectedly rose in August. The dollar index DXY, which measures the greenback against a basket of currencies rallied to 110.01 in its biggest one-day percentage gain since March 2020. The yield on the US 10-year Treasury note, meanwhile, rallied to 3.412%, while the yield on the 2-year note is now at 3.76% after stronger-than-expected US inflation data boosted investor bets that the Federal Reserve will need to stay aggressive in raising interest rates. The Federal Reserve will release its policy decision at the close of its two-day meeting next week, on Sept. 20-21.

Traders expect the Fed to hike by 75 basis points hike which would lift the Fed's current 2.25% to 2.5% policy rate range to 3% to 3.25% in its third straight hike. However, rate contracts now also reflect about one-in-four odds of a surprise full-percentage-point increase at the Sept. 20-21 meeting.

Analysts at Nomura, for instance,  said on Tuesday that the Fed is likely to raise its short-term interest rate target by a full percentage point at its policy meeting next week, because of the emergence of upside inflation risks. Nomura predicted that the US central bank would raise its fed funds target rate by 50 basis points at both the November and December meetings. The fed funds target is currently 2.25%-2.50%, following the Fed's 75-basis-point hike in July.

Meanwhile, the yen remains a concern for officials in Japan and the jawboning of the currency has already begun in trade today. Japan's Ministry of Finance's Masato Kanda who is its top currency official has said he is concerned about recent sharp yen moves and that they will respond appropriately to FX moves without ruling any options out while monitoring FX moves with a sense of urgency.

USD/JPY technical analysis

The harmonic pattern is bearish and a break of 141.50 will be a key development in the days ahead, should that eventuate. The US dollar is on heat right now so attempting to pick a top would be futile, but monitoring for a deceleration in the rally will go a long way in determining when an opportunity to short the length of this rally could be in the offing. 

DXY H4 chart

The chart above illustrates the market structure and key support levels should the US dollar take a turn for the worst in the coming days which could prompt a buying camping in the yen. 

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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