This week, the USD has shown volatility, while the JPY has been trending stronger. Key highlights include the recent US employment report and this week’s US CPI and PPI. Despite persistent inflation pressures in core indices, headline numbers have declined as expected, raising expectations for a 25bp rate cut at next week’s FOMC meeting. However, WSJ reporter Nick Timiraos’ comment that the Fed is considering either a 25bp or 50bp cut has introduced renewed uncertainty.
JPY Movements: The JPY has strengthened due to falling US Treasury yields, with USD/JPY dropping into the 140s and hitting a new year-to-date low. This move is influenced significantly by comments from BOJ board members, who suggest that adjusting monetary easing might be the next step. Notably, the one-week volatility in USD/JPY has surged to 15.8%, reflecting risks heading into next week’s FOMC and BOJ meetings.
Geopolitical Risks and Market Impact: China’s economic risks are causing instability in commodity markets, while worsening conditions in Ukraine and tensions in Israel could also impact the markets. Oil prices have been volatile, recovering to the $69 range for NY crude futures, but they plunged to the $65 range earlier in the week, indicating a market sensitive to risk.
Upcoming Economic Indicators and Events: Key indicators to watch include the US Michigan Consumer Sentiment Index (September preliminary), Eurozone Industrial Production Index, and Canadian economic data. Additionally, speeches by ECB President Christine Lagarde and Bank of Finland Governor Olli Rehn are on the agenda. Market focus will be on the Fed’s next move ahead of the FOMC and the potential resurgence of geopolitical risks.
Strategy: Given the strong JPY buying this week, I plan to target selling USD/JPY. Also, if oil prices break through $70, further gains might accelerate, so I will be monitoring this closely.
