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USDJPY gains 1.0% to offset US inflation-driven decline above 142.00; US Michigan CSI anticipated
USDJPY advances near the intraday high despite consolidating the largest daily decline in fourteen years. During a lackluster day, the Yen pair recovers as a result of discussions on Japan's interference and China's robust economic conditions. The preliminary readings of the US Michigan Consumer Sentiment Index (CSI) could provide traders some entertainment.
During Friday's Asian session, USDJPY fluctuates around the intraday high near 142.50 as it consolidates the largest daily decline since October 1998. In doing so, the yen pair takes cues from the market's slightly negative sentiment as well as the session's inactivity in US Treasury yields.
However, fears of coronavirus resurface as Beijing, China, reported the greatest daily increase in covid infections in over a year. Nationwide, the number of daily coronavirus cases surpassed 10,000 for the first time in seven months. Aside from this, the US 10-year Treasury yields are inactive near the monthly low near 3.81%, which was flashed on Thursday, after marking the steepest decline since the beginning of December 2021.
The inactivity of the bond market may be attributable to the bank holidays in the United States and Canada, as well as the market's desire for additional confirmation of the Federal Reserve's decision to delay rate hikes (Fed).
It should be emphasized that rising fears of Japan's intervention in the currency market to defend the yen and the Bank of Japan's (BOJ) defense of the cheap money policy, along with hopes for an economic comeback in the next years, further support the USDJPY rebound.
Thursday, the US Consumer Price Index (CPI) for October disappointed markets by falling to 7.7% YoY, the lowest level since March of last year, compared to 8.0% predicted and 8.2% previously. Importantly, the Core CPI decreased to 6.3% compared to market expectations of 6.5% and previous readings of 6.6%.
Following the release of the data, the president of the Dallas Federal Reserve, Lorie Logan, stated that the October CPI inflation data is a welcome relief and that it may soon be time to halt the pace of rate hikes. According to Reuters, Federal Reserve Bank of Philadelphia President Patrick Harker stated on Thursday that the US Federal Reserve may decrease the pace of rate hikes in the coming months. It should be noted that Esther George, president of the Kansas City Federal Reserve, Loretta Mester, president of the Federal Reserve Bank of Cleveland, and Mary Daly, president of the San Francisco Federal Reserve, have all lately advocated for mild rate hikes at upcoming meetings.
Consequently, the CME's FedWatch Tool indicates a likelihood of about 80% for a 50 basis point (bps) rate hike in December, up from approximately 55% soon after the Fed's meeting last week.
Given recent expectations for an easy Fed rate hike in December and the BOJ's preference for soft monetary policies, the USDJPY pair is likely to continue to decline. However, today's initial readings of the US Michigan Consumer Sentiment Index (CSI) for November, which is predicted to be 59.5 compared to 59.9 in October, will precede Sunday's meeting between US President Joe Biden and Japan's Prime Minister (PM) Fumio Kishida in order to provide clear direction.
In the vicinity of 141.00-140.85, USDJPY bears are challenged by an ascending support line from early March and the 100-day moving average (DMA) due to the oversold RSI conditions. To convince buyers, the rebound must surpass the late-October swing low at 145.10, however.
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