- USD/JPY: holds above the hourly cloud
- USD/JPY: geopolitics take a back seat ahead of US CPI and the Fed next week.
The dollar was on the backfoot overnight as Trump called out other nation's currencies as undervalued in a tweet where he said, the euro “and other currencies are devalued against the dollar,” calling out the Fed for holding interest rates “way too high”. The USD/JPY pair initially rose to 108.80 but then fell to 108.50, to just above the hourly cloud.
Then, on the geopolitical front, there appears to be some let up in the angst this week so far, with things seemingly moving forward between Mexico and the U.S. Traders are sitting on their hands ahead of the G20 meeting later this month where Xi and Trump are supposedly scheduled to meet for dinner and trash out their outstanding trade issues, where otherwise, should a deal not materialise, Trump has threatened to go ahead with additional tariffs.
Markets are still pricing in an 80% chance of a Fed fund rate cut by July
U.S. yields have been a little higher overnight with the US 10yr treasury yield initially rising from 2.14% to 2.17% while 2yr yields climbed from 1.89% to 1.93%. Markets are still pricing in an 80% chance of a Fed fund rate cut by July, with a total of three cuts priced by May 2020. However, some observers expect the Fed to cut rates as soon as this meeting around and today's CPI is going to be market moving no matter the outcome considering the steaks involved for the dollar and the Fed.
"The US data focus is May CPI. While the Fed formally targets the personal consumption expenditures (PCE) deflator – 1.5%yr overall, 1.6%yr core in April – Chair Powell has also pointed to other measures at times. Given the heated debate over potential Fed rate cuts, CPI could be market-moving. Consensus is 0.1%mth, 1.9%yr overall, 0.2%mth, 2.1%yr ex-food & energy. This measure tends to run faster than PCE,"
analysts at Westpac explained.
USD/JPY levels
Valeria Bednarik, the Chief analyst at FXStreet explained that technical indicators in the 4 hours chart offer a slightly positive stance, as the price holds above its 20 SMA, which have lost its bullish strength, while the Momentum indicator points north and the RSI remains flat above its midline. USD/JPY needs a break above the 108.80 zone (top of its weekly range) to challenge next resistance area around 109.10 (100-SMA in 4H) en route to 109.80 (200-SMA in 4H). The risk will turn to the downside only with a break below 107.90, which could accelerate losses toward 107.50.
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