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  • Following yesterday’s BoJ let down, USD/JPY has started out Tokyo subdued.
  • The pair is hugging the daily Tenkan at 111.80, as traders sit back and await the FOMC and further key data events from the US on the build-up to the nonfarm payrolls showdown on Friday.  

The Bank of Japan offered a dovish statement and added new forward guidance on interest rates, stating that rates would be kept ‘extremely low’ for an ‘extended period’, with explicit reference to the planned consumption tax hike of October 2019 (and the need to assess the potential negative effects of this) as an anchor point. In other words, a further change in policy before 2020 is unlikely, as analysts at ABN AMRO pointed out:

Meanwhile, the dollar was performing on strong  Conference Board Consumer Confidence arriving at 127.4 vs 126.0.  The DXY traded between 94.1640-94.5680 but was further fuelled within that range on the Bloomberg headlines  that explained that the U.S. and China are trying to restart talks aimed at averting a full-blown trade war between the world’s two largest economies. However, towards the close, weighing on the benchmarks and taking them of their highs for the day, The WSJ said Washington hasn’t made ‘meaningful progress in easing its market-rattling trade dispute with Beijing’.

As for the yields, the US 10yr yields fell from 2.97% to 2.93% on the BoJ meeting before climbing back to 2.96% on improved risk appetite improved. The two-year yields climbed to 2.67%.  

Looking ahead, we have more key events from the US – (Nomura’s expectations as follows):

  • ADP private employment: “We expect ADP a report 190k gain in private employment during July (Consensus: 186k).”
  • ISM manufacturing index: “Manufacturer sentiment in July likely remained elevated, but we forecast that trade concerns and some capacity constraints may have resulted in the ISM manufacturing index retreating 0.8pp to 59.4 from 60.2 (Consensus: 59.3).”
  • FOMC meeting: “We do not expect any major developments at the July/August FOMC meeting. However, it is possible that the post-meeting statement will add “for now” when describing the FOMC’s plans for “further gradual rate increases,” consistent with Powell’s prepared remarks at his semiannual testimony.”  
  • Vehicle sales: “We expect a sharp decline in total light vehicle sales in July to 16.8m saar from 17.4m in June.”

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that the 4 hours chart shows that the upward momentum eased, but that the pair is still biased higher:

“Technical indicators are partially losing their bullish strength near overbought levels, while the price settled above its 100 and 200 SMA, also above the 50% retracement of its July rally, now the immediate support around 111.75. Bears can retake control on a break below 111.40, while bulls will be willing to add to longs if the pair advances beyond the 112.00 region.”