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Japanese Yen Leaps as US Dollar Sinks Post Powell. Is the Peak in Place for USD/JPY?

Japanese Yen Leaps as US Dollar Sinks Post Powell. Is the Peak in Place for USD/JPY?

Daniel McCarthy, Strategist

Japanese Yen, USD/JPY, US Dollar, Fed, Powell, Crude Oil, Gold - Talking Points

  • The Japanese Yen found support as the US Dollar wilted across the board
  • The Fed remarks seemed innocuous, but markets had other ideas for yields and stocks
  • If the notion of rate hikes subverts the US Dollar, what would a cut do to USD/JPY?

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The Japanese Yen is the best-performing currency through the Asian session today as the fallout from Federal Reserve Chair Jerome Powell’s commentary reverberates through markets.

He signalled that the Fed is likely to decelerate the size of their hikes, but not the scope. The market interpreted the remarks as a dovish tilt, with equity indices soaring higher, Treasury yields tumbling lower, and the US Dollar pummelled.

The Dow Jones gained 2.18%, the S&P added 3.09% and the Nasdaq rallied an astonishing 4.41%. The S&P 500 closed above the 200-day simple moving average (SMA) for the first time since April.

Treasury yields in the 2- to 10-year part of the curve dropped around 15 basis points. The 1-year note is unchanged.

For USD/JPY, the collapse in US yields appears to be a driving force undermining the currency pair.


Chart created in TradingView

At the same time, market-priced inflation expectations fell beyond the 2-year tenor, and this saw real yields slide as a result. The 10-year real yield dropped 23 basis points to further undermine the ‘big dollar’.

Forward-looking real yields are something St. Louis Fed President James Bullard identified earlier in the week as instruments that he is focussed on in terms of monitoring inflation expectations.

In Asia today, all stock market indices are in the green with Hong Kong’s Hang Seng Index (HSI) leading the way.

Crude oil benefitted from the weaker US Dollar in the US session but has eased through Asia today. The WTI futures contract remains above US$ 80 bbl while the Brent contract is a touch under US$ 87 bbl.

Gold has continued to make gains today with the precious metal holding above US$ 1,770 an ounce.

Looking ahead, Swiss CPI will be crossing the wires then the US will see some jobs data and the latest ISM manufacturing index read.

The full economic calendar can be viewed here.

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USD/JPY continued lowerafter moving below Ichimoku Cloud support, which could signal an end to the bullish run that has been in play since March. It may also indicate a possible bearish trend unfolding.

Support could be at the previous low of 135.81 and the breakpoint of 135.57 or the 200-day simple moving average (SMA).

Resistance could be at the previous peaks of 139.87 and 142.25 ahead of the Ichimoku Cloud.


Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for

Please contact Daniel via @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.