USD/JPY hangs in the balance of geopolitical headlines ahead of the Fed

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  • USD/JPY perks up after US CPI.
  • Eyes turn to the FED, but July carries the odds of a cut.

 back above the U.S. dollar was a touch softer immediately after a benign US CPI report, which trampled on initial bids from the European lows of the day, before bulls flexed their muscles when the data was digested, with a little something for both the bears and bulls and the dollar went on to stage a recovery. 

Headline inflation climbed by just 0.1%, with the annual pace easing back to 1.8% from 2%. Core inflation rose by just 0.1% as well taking the annual rate down from 2.1% to 2.0% and slightly below expectations. Subsequently, for the day, US 10yr treasury yields were left range bound between 2.11% and 2.14%, while 2yr yields slipped from 1.91% to 1.87% – partly a response to the subdued inflation data. 

Ahead of the Fed next week, markets are now pricing an 95% chance of a Fed fund rate cut by July (was 80% yesterday), with a total of three cuts priced by May 2020, and odds of a rate cut as soon as next week have decreased, shifting the emphasis on July’s meeting. 

Twitter feeds tweeting out the trade angst

Elsewhere, the Twitter feeds continue to play out their role as the go-to place for the latest antagonistic trade spat waffles ahead of the G20 next week. Both sides of the squabble were active over this medium of exchange and Trump was cited by various news outlets as expressing his apatheism towards China, for he is just as willing to continue to squeeze China with the implementation of higher tariffs –  That’s good news for yen bulls at least, but not so good for trend or sentiment traders who would like to see these geopolitical events come to a conclusion one way or another and to see an end to choppy price action resulting in being whipped out of what might have otherwise been perfectly sound and/or profitable trades.

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that from a technical perspective has turned broadly neutral in 4-hour chart, with price hovering around the 20-SMA and indicators flat at mid-ranges:

“However, from a wider view, the pair retains the bearish tone, with RSI having corrected from oversold readings in daily charts and price developing below 20,100 and 200-day SMAs. However, USD/JPY would need a break below the 107.75/80 support zone to extend the decline to 107.50 and then 107.00. On the other hand, the pair needs to at least regain the 100-SMA in 4H, currently around 109.00, to get some relief and attempt a steeper recovery to 109.60.”

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