USD/JPY taking on 109 handle following risk-on start to the week
- US/China trade deal hopes lifted spirits on Wall Street and weighing on the Yen.
- Markets expecting that the Fed will be lowering rates by 25 basis points.
USD/JPY stuck to tight 108.70/75 range for the best part of overnight's trade unto New York traders stepped in which initiated a squeeze to as high as 109.04 – a three-month high, backed by the bounce in US yields and positive sentiment surrounding Sino/US trade relations.
President Trump was stoking the flames of the market's hopes announcing that the US is ahead of schedule to sign the first phase of a US-China trade deal ahead of when Xi and Trump are scheduled to meet in Chile next month. This echoed the news that Chinese officials said parts of the text are “basically completed.”
Subsequently, the US 2-year Treasury yields climbed from 1.63% to 1.67% - a one-month high, before steadying at 1.64%. The 10-year yield climbed from 1.80% to 1.85%. US benchmarks were also buoyed by the risk-on sentiment, with a fresh all-time closing high for the S&P 500, weighing on the Yen.
Building up to the Fed
In the build-up to the Federal Reserve this week, we start with the following data releases: August house prices and Oct consumer confidence from the Conference Board. "This survey has tended to hold stronger than the U Michigan survey, sitting far above long term averages," analysts at Westpac argued.
As for the Federal Reserve's interest rate decision, it is expected that the Fed will be lowering rates by 25 basis points, delivering the third consecutive rate cut since July. Markets are pricing '21bp of easing at the 30 October meeting and a terminal rate of 1.27% (vs 1.88% currently)', according to analysts at Westpac.
"The FOMC is likely to communicate patience in deciding future policy moves after next week's cut as they assess the impact of the three cuts they have already delivered. We look for the Fed to temporarily pause before resuming rate cuts in Q1 2020," analysts at TD Securities explained.
USD/JPY levels