Despite maintaining a mild bid undertone on Tuesday, the Greenback is continuing to climb away from the 113.40 low it reached last Friday. In response to the relatively secure Yen weighing on a risk-on market, the duo has recovered to levels above 114.00, before finding opposition in the 114.30 range.
The Yen is weakening as a result of risk appetite and a dovish Bank of Japan. The Japanese yen has started the week on a softer note, supported by a mild appetite for risk, as quarterly numbers reports have triggered gains in the world’s major equities markets, according to Reuters.
Besides that, the market is preparing for a dovish fiscal position paper from the Bank of Japan sometime this week, which is contributing to the Yen’s downward pressure. With the Federal Reserve of the United States expected to begin winding down its stimulus package in the coming months, the growing yield differential between the US and Japanese Treasury securities has been one of the primary drivers of the USD/JPY’s roughly 5% gain since late September.
On the macroeconomic front, new home sales in the United States increased by 14% in September, reaching a six-month high of 800,000 units, far exceeding market analysts’ prediction of 620,000 units. The Richmond Fed Manufacturing Gauge, which measures the health of the manufacturing sector, has increased to 12 from -3 in the preceding month, with advances in all categories such as deliveries, new orders, and hiring. On the downside, the index of US home prices and the S&P Case-Schiller index of home prices have both climbed less than expected.
According To Credit Suisse, The USD/JPY Is Projected To Rise Towards 117.00/10
Economic analysts at Credit Suisse believe the duo is in a transitional stage, in front of yet more appreciation: “With a major base in a location well above 112.40 peak of 2019, we take a gander for an ultimate breach above 114.73/92 in due time for a transition at first to 115.51 then to the protracted downwards trend from April 1990 at 117.00/10. We anticipate the emergence of a possibly lengthy stabilization period in this situation.”
Review Of The Technical And Basic Details
USD/JPY CHART Source: Tradingview.com
USD/JPY kept its bid tone moving into the North American session, but couldn’t gain acceptance or impetus beyond the 114.00 level. The pair found traction on Tuesday after rising overnight from 113.40, hitting rising trend-line strength from Sept swing low points. The risk-on mindset, which tends to undercut the relatively secure Japanese Yen, fueled the bullish advance for the second day.
The rise lacked credibility due to further Greenback selling and a continuation of the recent decrease in US Treasury bond rates. Despite the Fed’s aggressive projections, the return on the benchmark 10-year US government bond has fallen below 1.60 percent. On Friday last week, Fed Chair Jerome Powell said that the banking system would start to decrease its bond-buying by the end of the year.
Fears that the current surge in commodity prices may drive inflation have prompted markets to price in an interest rate increase in 2022. The underlying background appears to favor bullish bets and further gains. Before Thursday’s Bank of Japan strategy review and the Preliminary US Q3 GDP data, traders are expected to be cautious. This calls for caution from overzealous bullish traders.