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  • USD/JPY has spiked up towards the 112 handle, extending gains through the 10 & 21-D SMA and bouncing off the trend line support once again.
  • The US dollar firmed up across the board, having recovered from a spell of weakness down at 94.1640 on entering NY trade. USD/JPY is currently trading at 111.91 having just made a high of 111.96 from a pre-BoJ low of 110.73.

The BoJ disappointed overnight and the pair took off on JGBs rallying after BOJ pledged to keep rates ‘very low’ in their forward guidance. The volatility picked up when the BOJ tweaked its policy, causing the bullish bias on the dashed speculation that a YCC exit was imminent.

Analysts at TD Securities explained that instead, several changes introduced more flexibility around current policy:  

“New forward guidance, more YCC flexibility to keep 10yr yields at 0% +/- 20bps, and pivoted ETF purchases towards the Topix. Two dissented for stronger measures and Kuroda emphasized these changes were to increase the sustainability of easing measures and improve market functioning. Global rates bull flattened and this should extend in the US. We target 10y at 3.10% by end-2018. In FX, the dovish tone should help USDJPY elevated within the recent 110.50/113 range for now. Investor focus shifts to the heavy data and event calendar remaining for this week,”

the analysts at TD Securities explained.  

On the data front, today, the dollar picked up the bid again after US Consumer Confidence measured by the Conference Board came in above expectations at 127.4 (vs. 126.5 exp. and 127.1 prev.) for the current month.  We also had the US inflation figures gauged by the Core PCE rising at an annualized 1.9% in June, a little below estimates. We also had Personal Income and Personal Spending through that was seen expanding 0.4% MoM during the same period, matching prior surveys. Eyes will now turn to the FOMC that is expected to leave its monetary policy on hold while July’s ISM Manufacturing is seen a tad lower at 59.4 from June’s 60.2.  

FOMC expectations

Meanwhile, observers are looking to the FOMC as a potential non-event. The analysts at TD Securities explained that the FOMC updated its statement language as recently as in June, which they argue, likely means no material changes for August. “The opening paragraph should cite strong recent GDP and job growth, with inflation returning to target. This near-term optimism is already fully priced into market expectations for a September rate hike…Our base case should be a non-event for rates; a dovish scenario should see a bigger move – Limited impact on USD.”

USD/JPY levels

JPY has been underperforming all of the G10 currencies and USD/JPY has crossed the 111.27 Kijun, but we are back to familiar grounds on the upside and until the pair can get through and hold above the 200-W SMA at 113.24 and above the 2018 highs of 113.17, the outlook remains neutral on space on the 112 handle. 112.80 will be a big test for the bulls. A break there turns outlook neutral/bullish. Back on the downside, 110.55 comes as a key support below the daily trendline support.