The US Dollar Index experienced significant volatility last week but is still maintaining its elevated levels from December. Factors such as the stabilization of the USD/JPY exchange rate after a sharp drop and a somewhat positive US jobs report have contributed to USD buying. However, there seems to be a lack of momentum for a further significant USD rally.
Regarding the USD/JPY pair specifically, the impact of last week’s sharp decline is still evident, and it has not completely recovered. The market has been increasingly speculating on an early removal of negative interest rates following remarks by Bank of Japan Governor Kuroda. Last week’s sharp decline was largely influenced by JPY strength. Key resistance levels to watch include the psychological level at 146 yen and the 10-day moving average around 146.60.
As for tomorrow’s US Consumer Price Index for November, market expectations are for a month-on-month reading to remain stable, similar to the previous month. The core month-on-month figure is expected to slightly accelerate to +0.3% from the previous +0.2%. The year-on-year reading is expected to show a slight slowdown to +3.1% from the previous +3.2%, while the core year-on-year reading is anticipated to remain at +4.0%. At this stage, it’s challenging to predict the market’s reaction to these numbers.
Today, we’ve seen strong USD buying, but as we approach tomorrow’s US CPI release, we anticipate a gradual consolidation. Our focus remains on USD selling.”