USD/JPY holding steady in 105.80s as politics remain at the fore

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USD/JPY is trading at 105.88 and between a range of 105.82 and 105.9 in a quiet start to the week despite political developments from over the weekend. 

Firstly, the US President Donald Trump signed executive orders prohibiting US residents from doing any business with TikTok, WeChat or the applications’ Chinese owners, citing the national security risk of leaving Americans’ personal data exposed.

This move is seen as part of a wider strategy to distance the US from China. Relations between the two countries are at their lowest point in decades and the fall out could be supportive or the US dollar following disagreements on a number of issues like trade and human rights

Another development over the weekend came with Trump’s signing of an executive order providing temporary fiscal assistance.

Negotiations between the White House and Democrats have been at a deadlock for may days but these orders, which include enhanced unemployment benefits over the remainder of 2020, deferred payroll taxes, a moratorium on evictions, and postponed student loan payments and interest. could be the beginnings of a deal.

This could be a positive scenario for risk appetite at the start of this week, accompanied by the positive outcome from the US nonfarm payrolls on Friday.

The NFPs rose by 1.763 million in July vs 1.480mn expected and +4.79mn in June. The unemployment rate dropped to 10.2% from 11.1% in June, now some way below the record high of 14.7% in April.

The week ahead

For the week ahead, inflation data and Retail Sales will also be important in the week ahead.

The Consumer Price Index likely rose strongly while Retail sales likely slowed after huge gains in May and June.

For CPI, analysts at TD Securities explained that they expect unwinding of some of the March-May plunge in travel-related prices to outweigh slowing in rents.

That said, we think the slowing in rents is more indicative of the trend in the year ahead. The YoY pace in core prices likely remained low at 1.2% in July.

For Retail Sales, the analysts said that a sizable gain in autos has been signalled by the units data, while gasoline spending was probably boosted by higher volumes as well as prices.

We expect more slowing in the data for bars and restaurants and the control series.

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