US Dollar Surges as Yen Sinks Ahead of Fed Rate Decision. Will USD/JPY Go Higher?

US Dollar,USD/JPY, Crude Oil, Gold, China, PBOC, Fed, BoJ - Talking Points

• The US Dollar continues to strengthen as commodities are reeling
• China faces growth impediments as the zero-case Covid-19 policy impacts
• The Japanese Yen is suffering from higher import costs.Where to for USD/JPY?

The US Dollar made a 5-year high against the Japanese Yen today, trading above 118.

In a risk-off environment, the Yen would normally see buyers emerge, however the higher oil and raw material prices is working against it for now. The expected Fed rate hike versus the dovish Bank of Japan is also undermining it.

Treasury yields have continued their march higher across the curve with the benchmark 10-year note at a 3-year high near 2.14%.

The higher interest rates saw gold plummet further, trading below US$ 1,930 an ounce today, a long way from last week’s high at US$ 2,070.

Similarly, the WTI crude oil futures contract is now probing below US$ 100 bbl, well down from the peak of US$ 130.50 bbl seen last week.

The Dow Jones finished its’ cash session flat, while the S&P 500 and the Nasdaq went lower. Futures are pointing to small gains for their open at the time of going to print.

The PBOC left the medium-term lending (MLF) facility unchanged at 2.85%, when the market had been looking for a cut to 2.75%.

The data from China today was stronger than expected with year-to-date industrial production coming in at 7.5% year-on-year instead of 4.0% anticipated.

China has seen the re-emergence of Covid-19 and Shenzhen has gone into lock down along with many other provinces. Shenzhen is a significant port and the location of many important Chinese technology firms.

Hong Kong and Chinese mainland stocks were lower as a result and Australia’s ASX 200 also went south as commodities continued to leak lower. AUD and NZD were the notable underperforming currencies today.

Japan’s Nikkei 225 index swam against the tide, posting small gains as a weakening Yen provided a boost.

Looking ahead, Canadian housing starts data will be released just prior to US PPI.

The full economic calendar can be viewed here.

USD/JPY Technical Analysis

USD/JPY surged higher to break above an ascending trend line. The next level of potential resistance is at January 2017 high of 118.551 and the December 2016 peak of 118.665.

On a move like this, it is not surprising that short, medium and long-term simple moving averages (SMA) all display a positive gradient and are below the price. This may indicate bullish momentum.

On the downside, support might be at the former peak, now pivot point of 116.353 or the 10-day SMA, currently at 116.230.

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter