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  • USD/JPY lost a handful of pips following the release of the FOMC minutes although lack of follow through and price clings to 21/10- 5min SMA confluence at 113.45.
  • FOMC minutes do little to negate dovish tone set by Powell’s speech yesterday.
  • The minutes of the two-day Fed meeting ending Nov. 8 released Thursday show that almost every member of the Federal Open Market Committee was on board with lifting interest rates “fairly soon”   – However, the  Fed is data dependent and  job market and inflation data must fall in  line with expectations.

The  Yen  was the best G10 performer following  Powell’s dovish speech, which figures given the mounting risks ahead when we look across the pond to Brexit, Italy and further afield, China.  

The yield  spread between JP/US has come in considerably in a yen supportive manner and the sensitive 2 year US yield dropped to as low as 2.77% earlier today while the 10-year yield momentarily lost the 3.00% handle to slip to 2.99%. However, on both accounts, yields have stabilised and risen from the lows with the 10s back to 3.038% and the 2’s back to 2.81% at the  time of writing, unchanged on the FOMC minutes.  

The FOMC minutes were showed that almost every member of the Federal Open Market Committee are committed to hiking rates again “fairly soon” so long as data stacks up. There is a particular focus on the job market and inflation data. Therefore, we should see a rate hike in December, but 2019 is as clear as mud.  “Many” members are saying that it might be appropriate in future meetings to change the language in the statement, and that ties in well with Powell’s comments yesterday and the Street’s thinking  which has long doubted that the current economic cycle would survive 3 percent Fed Funds. The futures market sees peak Fed Funds near 2.75%, and the last Fed dot plot forecast is at 3.375% – The Fed at the November meeting held its target of a federal funds rate between 2% and 2.25%. So, we now look to December’s meeting and should the statement get rid of the phrase “further gradual increases,” a rate hike will be regarded as a dovish hike and likely cap USD/JPY’s advance.    

Trump  Xi summit next risk for USD/JPY

From here, US stocks are likely to dictate into month-end and the close for the week as we look to the Xi/Trump summit for further clues for the direction of the yen. A negative outcome of that meeting will likely play into the Yen’s favour in the current climate for the greenback. The dollar had been bid on the back of trade war angst, but it appears that the markets are waking up to the tail end risk factors for the US economy on prolonged trade war risks for the wider global economy – The US is not an isolated force in this regard. However, Trump’s administration is not going to complain about a weaker dollar when it comes to trade and the recent shift n the Fed is also likely giving Trump some ammunition into this weekend’s meeting.  

USD/JPY levels

Analysts at Commerzbank explained that USD/JPY has seen failure at the 114.05 resistance line:

“Given we would allow for a slide back into the range possibly to the 2 month support line at 112.06. Above the market lies the 114.55 October high and the 115.60 61.8% Fibonacci retracement – this represents very tough overhead resistance. The 55 day ma at 112.98 guards the base of the cloud at 112.16 and the 122.06 support line.: