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Futures data from September 17th: Spot gold prices surged above the 3,700 mark overnight, with COMEX gold futures rising 0.23% to $3,727.50 per ounce, and SHFE gold futures closing up 0.19%. Expectations of a Federal Reserve rate cut, a weakening dollar, and geopolitical uncertainty are all contributing to golds performance. Focus is on the Federal Reserves September meeting and the subsequent Quarterly Economic Projections (SEP). The US dollar continued to weaken on Tuesday, with the US dollar index falling 0.74% to a low of 96.54, hitting a near two-month low. Furthermore, the dollar fell 0.9% against the euro, reaching its lowest level since September 2021. Regarding economic data, US retail sales for August, released on Tuesday, rose 0.6% month-over-month, exceeding expectations of a 0.2% increase. The previous reading was revised from 0.5% to 0.6%, demonstrating resilience in consumer spending. The Federal Reserve held its meeting early Thursday morning, and a rate cut is all but certain. With the US Presidents newly nominated Fed Governor, Milan, participating in the FOMC meeting, the published dot plot is expected to show a more dovish tone, with the number of rate cuts for 2025 expected to fluctuate between two and three. Furthermore, continued pressure from the White House on Powell and other governors is crucial. Concerns about the Feds independence may continue to exacerbate market volatility.According to the Wall Street Journal: Eli Lilly (LLY.N) will invest $5 billion to build a factory in Virginia, USA.Japanese Ministry of Finance: Japans exports to the United States fell 13.8% year-on-year in August; exports to the European Union increased 5.5% year-on-year in August.Japans seasonally adjusted merchandise trade account in August was -150.125 billion yen, compared with expectations of -341.3 billion yen and the previous value of -303 billion yen.Japans annualized rate of merchandise imports in August was -5.2%, in line with expectations of -4.2%. The previous value was revised from -7.50% to -7.40%.

USDJPY rebounds sluggishly to the mid-147.00s with modest USD strength, but lacks durability

Alina Haynes

Nov 07, 2022 18:04

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On the first trading day of the new week, the USDJPY attracts some buying in the region of 146.70 and recovers a sizeable chunk of Friday's post-NFP losses. Throughout the beginning of the European session, the pair has maintained a bid tone and is currently hovering near the day high, near the mid-147.00s.

 

The US Dollar regains its bullish momentum and appears as a major factor supporting the USDJPY pair. Market participants are convinced that the Federal Reserve will retain its tough stance against persistently high inflation despite Friday's mixed employment report. In actuality, the markets continue to price in the possibility of a rate hike of at least 50 basis points in December, which continues to sustain rising US Treasury bond yields and acts as a tailwind for the currency.

 

In contrast, the Bank of Japan has shown no intention to hike interest rates and has confirmed that 10-year bond yields will remain at 0%. This indicates a substantial divergence between the policy attitudes of the two major central banks and bolsters the USDJPY's potential for further appreciation. Despite this, reports that the Japanese government may intervene once more to avoid a severe collapse in the yen may limit any big increase in market prices amid a softer risk tone.

 

Concerns of headwinds stemming from China's intention to maintain its economically harmful zero-COVID policy have weakened investor confidence. Aside from this, the protracted Russia-Ukraine conflict has increased investors' fears of a recession and lowered their appetite for riskier assets. This is evident from the gloomy atmosphere that often surrounds equity markets, which tends to bolster the JPY. In the absence of relevant economic data, this may contribute to any further USDJPY gains.

 

Even from a technical perspective, the recent range-bound price action of the USDJPY pair implies a lack of near-term direction. Traders remain hesitant to place large bets and may prefer to wait until Thursday's release of the most recent US consumer inflation data for a fresh boost. Before positioning for a future increase, it is essential to wait for strong follow-through buying.


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