- USD/JPY is currently trading at 113.36 between the Asian range so far of 113.44 and 113.25.
- Focus remains on disappointing China Nov IP and retail sales data into FOMC.
USD/JPY fell from 113.65 to 113.20 in a risk-off end to the week and the defensive yen was outperforming. US equities fell around 2% with Europe down 0.5-0.9% as investors fear that global growth was coming under pressure again with European PMIs falling sharply while China’s data failed to bounce.
US Treasury yields fell 2-3bps across the curve as the market continued to reassess the Fed’s likely path from here. The US 10yr treasury yield fell from 2.91% to 2.89%, while the 2yr yield fell from 2.75% to 2.73%. The Fed funds rate futures also continued to price the chance of a rate hike this week around 75% with a March 2019 rate hike given a 30% chance.
The Fed is expected to hike 25bp
- Fed will probably remove more of its forward guidance to increase its flexibility – Danske Bank
The Fed is expected to hike 25bp in December but to remove guidance, while slightly reducing the near-term dots. There is likely to be an emphasis on a data dependent and risk management approach.” Chair Powell will try to soothe markets by stressing that the Fed wants to extend the business cycle and thus will proceed slowly and deliberately. We expect a modestly dovish market reaction,” analysts at TD Securities argued, On the BoJ, the analysts explained that the central bank should close the year out with a whimper. “With no accompanying Outlook Report, there is not much for the Bank to dwell on or base a shift in stance with YCC flexibility nearly 6-months in. Since this change, the bond dealer survey continues to show very modest improvement in bond market functioning.”
USD/JPY levels
- Support levels: 113.10 112.90 112.55
- Resistance levels: 113.70 114.00 114.40
Valeria Bednarik, Chief Analyst at FXStreet explained that the pair has been struggling for direction for over a month already, with the downside well-limited but no follow-through beyond the 114.50 price zone, where the pair topped early October:
“The daily chart shows that technical indicators have lost upward momentum, heading lower in neutral territory, falling short of indicating a bearish extension, moreover considering that the pair has bounced several times from a bullish 100 DMA, currently at 112.40. Shorter term and according to the 4 hours chart, the technical picture is neutral, as the pair bounced modestly from directionless and converging moving averages, as technical indicators head nowhere around their midlines.”
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