- It was a textbook response from markets until the Dollar kicked in.
- Stocks are following the geopolitics and are on the backfoot.
- eyes are on the BoJ and the Fed this week.
USD/JPY reversed the initial risk-off plunge and climbed from 107.70 to 108.10, recovering to its pre-weekend levels despite global financial markets following the strike on Saudi Arabia’s oil facilities over the weekend. USD/JPY were respecting the rising channel’s support – The Dollar was also playing its role as a safe haven.
It was a textbook response from markets, although this week’s FOMC meeting is taking priority where there are expectations that rates will be cut 25bps. There will also be the Fed’s guidance which is expected to leave open another rate cut in Q4 if needed – Markets are pricing 22bp of easing at the 19 September Fed meeting, and a terminal rate of 1.25% (Fed funds rate currently 2.13%), according to analysts at Westpac.
However, stocks are following the geopolitics and are on the backfoot – The S&P 500 fell 0.3%, with the DJIA down 0.5%. In Europe, the DAX fell 0.7% and the FTSE 100 fell 0.6%. WTI rose to US62.6/bbl. Gold lifted 0.9% to US1502.4/oz. As for yields, US 2-year treasury yields ranged between 1.74% and 1.78%, the 10’s travelled between 1.82% and 1.87%.
This week, the BoJ will also hold its regular policy meeting in an environment which has brought a wave of easing from central banks around the world – “Speculation is building that although policy is set to remain on hold this week, that the BoJ may be prepared to lower short-term rates further into negative territory in the coming months. While the forward guidance offered by the BoJ this week could be a crucial determinant of the BoJ’s resolve, a crucial component in the outlook for the JPY and potentially in the policy decisions made by the BoJ in the coming months relates to the Fed.”
Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair is battling to regain the 108.00 level:
“Bullish after bouncing from a critical Fibonacci support, the 61.8% retracement of its August decline. In the 4 hours chart, the pair is a handful of pips above a directionless 20 SMA, while technical indicators aim north within positive levels, keeping the risk skewed to the upside. Nevertheless, to confirm the bullish momentum, the pair would need to break above the high set last week at 108.25. Bulls could lose control if the pair break below 107.45, the mentioned Fibonacci support.”