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30 Jul 2019

USD/JPY struggles to pull away from lows after US inflation data, trades around 108.50

  • Annual core PCE Price Index ticks up to 1.6% in June. 
  • 10-year US Treasury bond yield turns flat on the day. 
  • US Dollar Index stays above 98 as attention turns to CB Consumer Confidence data. 

After dropping to the 108.50 with fears of sides failing to make progress in the US-China trade talks weighing on the market sentiment and ramping up the demand for safe-havens, the USD/JPY pair struggled to stage a meaningful recovery and was last seen trading at 108.55, losing 0.2% on the day.

Trade uncertainty weighs on market sentiment

Earlier today, US President Trump tweeted out that there were no signs of China purchasing agricultural products from the US, causing trade optimism to fade away and the market sentiment to turn sour. Although Trump later said that trade negotiations with China were going well, he further stated that he wasn't sure if he'd accept China's offers in talks.

Major equity indexes in the US started the day deep in the negative territory amid trade uncertainty and helped the Japanese yen remain resilient against its rivals. In the meantime, the 10-year US Treasury bond is struggling to gain traction in the risk-off atmosphere and was last flat on the day at 2.054%.

Markets ignore inflation data ahead of Fed

Today's data from the US revealed that the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve preferred gauge of inflation, ticked up to 1.6% in June but fell short of the market expectation of 1.7%. Nevertheless, the market reaction to the data stayed muted as investors remain on the sidelines ahead of tomorrow's FOMC announcements.

Commenting on a possible market reaction to tomorrow's event, "While we expect one further cut from the FOMC this year, the market is pricing a further three cuts beyond that by mid-2020. For that to prove correct, the household sector will have to be hit by current and/or future uncertainties," said Westpac analysts.

"If the status quo is maintained on trade and fiscal policy, this is unlikely, but the market is unlikely quickly to give up on current pricing, so any bearish outcome for US 10yr yields is not likely to be material or sustained for an extended period. So we remain better buyers on dips and expect yields to remain within the current 2-2.15% trading range.“

Technical levels to watch for

 

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