USDJPY ignores downbeat yields to recover as BoJ signals defend policy doves

The downbeat US data propels odds of the Fed’s rate cuts in early 2024 and joins an absence of major geopolitical bad news to weigh on the US Dollar, as well as the Treasury bond yields. However, the same improves the market sentiment and puts a floor under the USDJPY price, due to the quote’s risk-barometer status. Also, the recent updates from the Bank of Japan (BoJ) have consistently defended the easy-money policy and offered additional strength to the Yen pair’s recovery.

It’s worth noting, however, that the other major currency pairs and commodities lack clear directions. That said, EURUSD seesaws around the multi-month top marked last week while GBPUSD remains idle within the latest range. Further, gold prints the first daily loss in three but Crude oil edges higher after crossing 50-SMA for the first time in two months.

Elsewhere, stocks in the Asia-Pacific markets edge higher while tracking Wall Street’s gains but the European and the British equities seek more clues to defend the previous run-up during the first trading day of the week.

On a different page, the crypto market fades the previous optimism amid challenges for the spot ETF approvals and the industry versus the US SEC tension. Even so, expectations of a bullish 2024 put a floor under the BTCUSD & ETHUSD prices.

Following are the latest moves of the key assets:

• Brent oil remains firmer at three-week high, up 0.40% intraday near $81.00 by the press time.
• Gold price prints the first daily loss in four around $2,065 at the latest, printing a mild pullback amid sluggish markets.
• USD Index holds lower grounds near 101.45 as we write, licking its wounds at the lowest level since late July marked on Friday.
• Wall Street closed with minor gains and so did the Asia-Pacific stocks. Equities in the UK and Europe trade mixed during the initial hour.
• BTCUSD and ETHUSD remain pressured to near $42,500 and $2,230 amid the year-end consolidation as we write.

Dovish Fed bets weigh on US Dollar, yields but BoJ defends Yen buyers…

On Tuesday, the US S&P/Case-Shiller Home Price Index improved to 4.9% YoY for October from 3.9% prior, versus 5.0% expected, while the Housing Price Index eased to 0.3% compared to 0.5% expected and 0.7% prior. Further, the Dallas Fed Manufacturing Business Index for December improved to -9.3 from -19.9 while Chicago Fed National Activity Index rose to 0.03 from -0.49.

With the mostly downbeat US data and the recently dovish Fed commentary, market players are mostly certain about witnessing rate cuts from the US central bank during early 2024. However, the quantum of such rate actions, as well as the start of the rate-cut cycle, tests the US Dollar bears amid the year-end sluggish trading.

While the US Dollar remains pressured, the latest BoJ Summary Opinions join dovish comments from BoJ Governor Kazuo Ueda to test the USDJPY bears despite the downbeat Treasury bond yields. It’s worth noting that the US two-year Treasury bond yields poke the monthly low, which is also the lowest level since late May, whereas the 10-year and 30-year counterparts also fade the previous week’s corrective bounce.

Apart from the Fed bets, the improvement in China’s Industrial Profits during November, with 29.5% YoY growth, joins Russian President Vladimir Putin’s readiness for the ceasefire in Ukraine to lift the sentiment and please the USDJPY buyers. On the same line could be China’s push for demand-driven growth and heavy stimulus to defend the economic recovery.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

Mid-tier data to entertain traders on full markets’ return…

With all the major bourses back for trading for the last few days in 2023, market players will witness comparatively active trading on Wednesday. The same could allow the US Dollar to pare the yearly losses should the scheduled activity and housing data print upbeat data. That said, the US Richmond Fed Manufacturing Index for December and the API Weekly Oil inventories decorate today’s calendar.

May the trading luck be with you!