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  • USD/JPY supported with demand stemming from  Hong Kong news.
  • US bonds painting a not so encouraging picture as stocks.  

USD/JPY rose from 106.05 pre-Hong Kong news which helped to spur on a risk rally across markets which helped the pair to run to a high in the 106.40s. USD/JPY is currently trading at 106.42, having started out the Asian day at 106.32. Bulls are in control, although the upside potential is somewhat limited from both a fundamental and technical view until bulls can get onto the 107 handle.  

The US 2-year treasury yield price action was mixed wit an initial bid in European markets to 1.47%before moving back to 1.43% and another two-year low, while the 10yr yield ranged sideways between 1.44% and 1.50%. Stocks, on the other hand, were more positive, ignoring the weaker data of late in the US stock market, although enthused on news from Hong Kong and in the absence of any trade war dramas. Subsequently, the Dow Jones Industrial Average, DJIA, put on 237.45 points to reach 26,355.47, a gain of 0.9% while the S&P 500 index added 31.51 points at 2,937.78 for a 1.1% gain.  

HK government will withdraw the bill which would have allowed extradition to mainland China

“In early London trade, Hong Kong chief executive Carrie Lam confirmed newswire reports said the government will withdraw the bill which would have allowed extradition to mainland China, citing the need to allay public concerns. This was a positive surprise though is only 1 of the protesters’ 5 key demands,” analysts at Westpac explained.  

Brexit, Brexit…Brexit

Elsewhere, Brexit is up in the air again and it looks like there will be a delay to the Brexit date considering the numbers in Parliament that are stacked up against the Brexiteers and Boris johnson who is failing to lead MPs towards his Haloween Brexit target date.  

The UK parliament supported the bill to extend the Brexit deadline and its in  the hands of the House of Lords for approval – There seems to be all sorts of jiggery-pokery going on to block such a bill there though considering the  100 amendments that could hinder an early return to the Commons for potential Queen’s Assent. PM Johnson then proposed an early general election which was voted down by Lawmakers which means its back to the drawing board and likely negotiations behind the scenes – “However, given a 2/3 majority is needed to approve that, it may be delayed until there is a conclusion to the Brexit deadline delay bill,” analysts at Westpac argued.

While there does appear to be a better risk appetite in markets, it may be shortlived in the US bond market is anything to go by, which is not moving in tandem with stocks and yields remain pressured which could prevent a full-on rebound in USD/JPY. Indeed, the market is also expecting a rate cut from the Fed. “Markets are pricing 31bp of easing at the 19 September Fed meeting, and a terminal rate of 0.90% (Fed funds rate currently 2.13%),” analysts at Westpac pointed out.  

USD/JPY levels