Can US Data Provide the Catalyst for FX Intervention?

Japanese Yen (USD/JPY) Analysis

• Currencies appear immune to moves in the bond market
• Markets taunt Japanese officials as USD/JPY is merely pips away from 150
• US Q3 GDP and PCE data could provide the catalyst for FX intervention
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Currencies Appear Immune to Moves in the Bond Market

The 10-year Japanese government bond yield rose sharply on Thursday ahead of Friday’s inflation print. Yields have been rising as the Bank of Japan prepares to withdraw from its negative interest rate regime as wages and price pressures rise.

US yields have also risen, particularly this week but oddly enough it has had little effect on elevating the dollar and the same can be said for the yen.

Japanese Government Bonds (10-year yield)

Source: TradingView, prepared by Richard Snow

The yen has consolidated since September and apart from one large spike (speculation of FX intervention) moves have been contained.

The index below is a simple weighted index consisting of USD/JPY, AUD/JPY, GBP/JPY and EUR/JPY. It provides a general picture of overall yen strength.

Japanese Yen Index (Equal Weighted Index of USD/JPY, AUD/JPY, GBP/JPY and EUR/JPY)

Source: TradingView, prepared by Richard Snow

USD/JPY toys with the 150 mark, almost as if the market is tempting Japanese officials to make a move. Officials continue to talk about the FX market but the urgency around such comments appears to have eased off in the last week. However, next week’s tier 1 US data could provide the catalyst for a move above 150 as US GDP and PCE data become due.

USD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

Q4 brings with it plenty of opportunities. Find out what our analysts think of some of the most promising setups for the final quarter below:

Major Risk Events on the Horizon

Fed speakers today and tomorrow will be on hand to provide commentary on the recent impressive data coming out of the US, perhaps adding volatility to the dollar. Jerome Powell speaks at 17:00 GMT with Goolsbee, Barr, Bostic and Harker to follow into the evening.

Tomorrow, Japanese inflation will be keenly observed as the next data point being factored into the BoJ’s deliberations around possibly stepping back from negative rates. Thus far the yen has struggled to appreciate not just against the dollar but the majority of G7 currencies. The threat of FX intervention remains live as USD/JPY toys with the 150 level.

Next week, US GDP could be the catalyst that pushes the pair over 150 as the US economy is expected to expand 4.1% from last quarter. Current estimates from the Feds GDPNow tool estimates, based on early data, that Q4 is shaping up for more than 5% growth QoQ. US PCE follows on from a rather sticky US CPI print for September and could raise the possibility of a December Fed hike which is looking more likely.

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX