Despite many factors coming into play this week, the direction of the forex market remains unclear. It appears to be a standoff between the strengths and weaknesses of these various factors. Regarding the situation in the Middle East, President Biden visited Israel. There doesn’t seem to be a change in Israel’s stance, and on the surface, there were mentions of humanitarian measures. However, tensions have not eased, and depending on the circumstances, there is the possibility of regional expansion, such as Iran’s intervention. Given the geopolitical risks in the Middle East, there is ongoing uncertainty about oil supplies. However, while NY crude oil futures have stayed high around the $89-90 range, it has calmed down from the sharp rally seen in late September, which reached $95.
The market showed a nervous reaction to Chairman Powell’s remarks yesterday. The market has been increasingly speculating on the Fed’s halt to rate hikes, but Powell emphasized that options for future rate hikes are still on the table. However, this did not lead to a strengthening of the dollar. The dollar index has been stagnant.
With the Bank of Japan meeting at the end of this month, the dollar-yen pair has been relatively firm alongside rising US bond yields. However, it has been capped around 150 yen, and there is still a significant level of intervention caution. This week, there were reports of an upward revision in price outlooks in the next Bank of Japan Outlook Report, which briefly led to a stronger yen. However, it quickly returned to a weaker yen level, creating a nervous price movement. Japanese long-term bond yields have been gradually rising along with the increase in US bond yields. Trying the 1% yield curve control upper limit seems to be just a matter of time.
Today, the market is likely to continue monitoring news related to the Middle East situation. In terms of economic indicators, only Canadian retail sales for August are scheduled. In terms of speeches, as we approach the blackout period from tomorrow, speeches by officials like Harker, President of the Philadelphia Fed, and Mester, President of the Cleveland Fed, are scheduled in the overseas markets.
The Israel-Gaza situation, which was expected to escalate quickly, has ended up in a more prolonged standoff. This has left the market without clear cues, leading to a continued trend of range-bound trading, making it challenging to secure profits.