USDJPY closed around 111.92 in the US session Friday, jumped almost +0.47% on increasingly hawkish Fed talks, indicating a probable resumption of rate hikes in H2CY2019. The USD was also boosted by a steady core PCE inflation continues to hovering around Fed’s symmetrical 2% target and better-than-expected Q4 GDP. In the last few days, the US dollar also got some boost on fading optimism of the US-China trade/cold war, considering various tough US demands for China’s structural reforms. But as per early Monday report, the US-China is very close to clinching a trade deal, even without addressing some core structural issues like China’s SOE reform demand by the US.
A lingering China trade war/skirmish is negative for Chinese Yuan, other EM, commodity currencies and even China-savvy EUR as-well-as GBP, while positive for the USD. In fact, in a trade war like scenario, USD is behaving like a safe haven currency like Yen, CHF. The greenback was also buoyed by lingering Brexit jitters. Trump actually launched a currency war to make USD weaker in the disguise of a trade war, but his strategy is now working well.
Elsewhere, the Fed is now basically preparing the market for an eventual end of Fed’s dual QT by 2019-20 (rate hikes and B/S tapering). The Fed may close the rate hiking cycle by Dec’2019 after two more hikes for a mean neutral rate of 3.00% and may also close the B/S tapering at around $3B size by H2-2020. This is somewhat more hawkish than the market has already discounted in the last few months amid various Fed speeches and thus the USD is now getting some boost, especially after Powell’s semi-annual testimony last week.
Although the Fed is now in “patience” mood, it’s for the time being. The Fed may hike in June’19 (Q2) and then again in Dec’19 (Q4) for a mean neutral rate of +3.00% to stay ahead of the inflation curve. The Fed may also keep its B/S tapering in the present auto-pilot mode and close the same in late 2020, leaving the Fed B/S size around $3B. The market will now focus on the Fed’s new economic projections and dot-plots to be released in March
On Friday, the former NY Fed President Dudley also said that the Fed might start hiking again in the 2nd half of this year (2019). Although Dudley is now not associated with the Fed, is an influential former US policymaker, his comments, and the hawkish shift was taken by the market seriously. The US 10Y bond yield jumped by almost 5 bps to a high of 2.768% and well-off the January low of 2.543%.
Dudley said: “Fed's probably not done yet--I think if you really pressed the FOMC, they probably would say...they do actually still think inflation is going to pick up by the end of the year. As a result, the Fed’s new economic forecasts, to be released at their meeting later this month, will show a little bit of residual tightening in their projections. Whether they actually move then or not remains to be seen. If inflation (is) low and quiescent they will probably stay on hold. It is important not to over-parse what the Fed is saying and really focus on more in terms of the economic outlook. The Fed’s thinking is going to change if the outlook changes”.
Dudley clarified: “One reason the Fed moved to a patient policy stance at its January meeting was that financial conditions which include the stock market indicated there were downside risks to the outlook. The Fed can’t impact financial stability through interest-rate policy. That leaves a problem because the central bank’s toolkit to strengthen financial stability has actually eroded in recent years”.
On Friday’s Fed’s Bostic also did not diverge from his earlier forecast of at least one interest-rate hike in 2019. But he also said the market may be losing faith about the Fed’s commitment to meeting its 2% (headline) inflation target, given years of operating below that threshold.
Bostic said: “I am worried that the market may not take us seriously that the 2% target has symmetry to it, meaning that the Fed would be as willing to allow inflation to run above target as to stay below it. We have been below 2% for quite a while. There are some who are thinking it is because the markets don’t believe that if we ever go to 2% that we would let it go over so that 2% effectively becomes a ceiling.”
The Atlanta Fed President Bostic said: “I still expect the central bank to raise rates once this year as my forecast hasn't changed much since December. I had expected late last year that growth would slow in 2019. This was natural as some of the stimuli from the Trump tax cut and higher government spending started to wane. So far, economic data in 2019 has been weak, confirming my expectation of slower growth. Whether the data is pointing to growth returning to 2% ‘trend’ growth rate or to a more significant slowdown won’t be known for a few months-- I just don’t know. The spotty economic data at the start of the year stemming from the partial government shutdown just added to the uncertainty. There is a lot that has to sort itself out”.
Bostic continued: “I expect inflation to pick up this year. This didn't worry—but what did concern me is that the market seems to think the Fed’s 2% inflation target is a ceiling. Thus, I would not panic if inflation moves a little above the Fed’s 2% target and a 2.5%, 2.7% or 2.9% annual inflation rate would deserve a policy tightening. But 2.1% or even 2.15% (inflation) I’m going to be ok with that. It depends on what businesses report about the outlook for prices. Again, I would not rule out the use of negative rates or any other tool is required in a future crisis”.
On late Thursday, Fed’s Chair Powell said: “The economy is in a good place with low inflation and maximum employment. But not every American has enjoyed the benefits of the long expansion. The policymakers must do more to address problems that are holding back long-term growth”. Powell reiterated that “the Fed can afford to be patient (in deciding when to boost interest rates again).
Powell said: “The Fed is patient and watching risks. Nearly all job market indicators are better than a few years ago, and many are at their most favorable levels in decades. Business-sector productivity growth also moved up in the first three quarters of 2018. The Price stability side of Fed’s mandate is in a good place as inflation by our preferred measure averaged roughly 2% last year but signs of upward pressure on inflation appear muted despite the strong labor market. But the Fed policies are to boost labor force participation, productivity and the recent rise in productivity leaves room for wages to increase without raising inflation concerns”.
Powell is worried about global headwinds: “Over the past few months, we have seen some crosscurrents and conflicting signals about the near-term outlook. Those include a slowdown in major economies, particularly China and Europe. There is elevated uncertainty around unresolved government policy issues including Brexit and trade negotiations”.
Powell is also worried about some domestic headwinds: “Financial markets conditions have tightened since last fall. Also, some surveys of business and consumer sentiment have moved lower. Unexpectedly weak retail sales data for December also give a reason for caution. Thus, the Fed will be patient as we determine what future adjustments to the target range for the federal funds rate. The common-sense risk-management approach has served the Committee well in the past”.
Powell sees muted inflationary pressure despite wage growth and added: “Signs of upward pressure on inflation appear muted despite the strong labor market, with unemployment at 4% and wage increases picking up of late. More plentiful jobs and rising wages are drawing more people into the workforce. Business-sector productivity growth, which had been disappointing during the expansion, moved up. ... Rising productivity allows wages to increase without adding to inflation pressures”.
Powell urged for more structural reform and noted: “The US policymakers need to boost efforts to address long-term problems, such as low workforce participation and weak productivity growth. From 1991 through 2007, the US economy, as measured by the GDP, expanded annually by about 3%, similar to the pace seen for much of the period after World War II, Powell noted. But since 2007 (GFC), the GDP growth has averaged just 1.7%, a slowdown that has meant incomes are almost 20% lower now than they would have been if the stronger growth had prevailed over the past 12 years”.
Powell cited two elements of this economic slowdown - a drop in the growth rate of hours being worked, falling labor participation rate and the slow pace of productivity improvements due to structural reasons such as unfavorable demography and proper education.
On Thursday, the Dallas Fed President Kaplan argued for Fed patience to at least June’2019 and said: “The Fed could take a few months to see how much the slowdown is and I don’t think we should be taking any action on the Fed funds rate at least through June. There will be a decision regarding the balance sheet runoff in the not-too-distant future. A balance sheet is a critical tool that the Fed needs to have as one of the several tools in the event of a downturn. And the balance sheet needs to have the capacity to respond to the next downturn. I know there is some political sensitivity to the size of the balance sheet and other issues, but I think it’s a critical tool”.
But, Kaplan declined to comment on whether the decision will be made by the March FOMC meeting because it will be a group decision. When asked if the balance sheet has the capacity now to respond to the next downturn, Kaplan said: “the answer needs to be yes”.
Kaplan also said he is open to tweaks to Fed policy that would encourage it to let inflation run temporarily a bit over its 2% annual target, which it has struggled to meet. But he also said “proposals for how the Fed could implement those changes come with their own challenges, including how to effectively communicate them to the public and till now, I have not made up my mind on this matter”.
Kaplan is a known Fed hawk and non-voter for 2019 and his view is consistent with the overall Fed talks that the market could expect at least one rate hike in 2019 and the Fed will officially divulge its B/S tapering program by March’19 or H2CY-2019.
On Thursday, Fed’s VC Clarida, a known dove sounds very optimistic about the prospect of the US economy and employment/wage growth. On inflation, Clarida said in a speech that although the US core PCE inflation is consistently hovering around Fed’s target of 2%, the headline PCE inflation is at the lower range of Fed’s symmetrical target of 2%, primarily because of the slump in energy prices (oil).
Clarida noted: “Inflation, as measured by the 12-month change in the price index for personal consumption expenditures (PCE), is estimated to have been a little bit below 2 percent of late, largely because of recent declines in energy prices. However, core PCE inflation, which excludes food and energy prices and tends to be a better indicator of future inflation, is estimated to have been about 2 percent. Market-based measures of inflation compensation have moved lower, on the net, since last summer, though they have increased some recently, and some survey-based measures of longer-term inflation expectations are little changed. That said, taken together, the evidence suggests that measures of expected inflation are at the lower end of a range that I consider to be consistent with our price-stability goal of 2 percent PCE inflation”.
Clarida is worried about some recent soft US economic data and external vulnerabilities: “While my baseline outlook for growth, employment, and inflation is a positive one, a number of crosscurrents that are buffeting the economy bear careful scrutiny. Global growth is slowing, particularly in China and Europe. Global policy uncertainty remains elevated. And financial conditions have been volatile, making efforts to extract signal from noise more challenging”.
Thus, Clarida argued for Fed’s patience & data dependency for any future rate action, given that the Fed is close to its dual objective of maximum employment and price stability with the present Fed fund rate now just in the neutral range.
Clarida said: “As I have indicated in recent speeches, monetary policy at this juncture needs to be especially data dependent, with the federal funds rate now in the range of Federal Open Market Committee (FOMC) participants' estimates of its longer-run neutral level. Moreover, with employment and inflation now at or close to our dual-mandate objectives, the FOMC in its January statement indicated it can afford to be patient as we assess the need for further adjustments in our policy stance”.
Looking ahead, Clarida reiterated recent Powell comments/Fed stance that the policy rate action will be the primary tool in conjunction with the IOER, ensuring ample liquidity in the system to avoid any financial tightening: “The FOMC will continue to set the stance of policy by establishing the target range for the federal funds rate. The interest on excess reserves rate will be our primary tool to keep the federal funds rate in the target range. In this regime, we will provide an ample supply of reserves in the banking system to ensure that we remain on the flat portion of the reserve demand curve and that the federal funds rate is insulated from shocks to reserve demand and supply”.
Thus the Fed now may focus on the B/S tapering issue and its eventual end: “With this decision on our operating regime made, the Committee can now decide on the appropriate timing and pace for concluding our balance sheet drawdown. In the longer run, the ultimate size of the balance sheet will be determined by the demand for Federal Reserve liabilities such as currency and reserve balances”.
In February, USDJPY jumped +2.31%, EURUSD was almost flat (+0.02%), while GBPUSD slumped -0.35% amid hopes & hypes of a smooth and delayed Brexit. As a result, the US dollar index (DXY) was almost flat +0.01% (on higher weightage of EURUSD). But on Friday, DXY also surged +0.29% as GBPUSD tumbled -0.40%, while USDCAD soared +0.88% on subdued Canadian GDP and PMI data and a slump in oil. The market is now focused on the Fed for its rate and QT trajectory apart from the US-China trade/cold war or truce.
On Friday, the US Treasury Secretary Mnuchin warned about the China deal and said in an interview: “The trade deal with China is not done yet. But we have made a lot of progress and we still have more work to do. We are working on a 150-page, very detailed, document for significant, structural commitments from China. We hope to make progress this month. And, if we do, there will be a summit of the Presidents”.
Mnuchin clarified: “This is a very, very detailed agreement for some very significant commitments. And these are structural commitments, but we still have more work to do. At the same time, the White House and the cabinet are completely united on the positions. Whether it’s myself, or Ambassador Lighthizer, Secretary Ross, Larry Kudlow or Peter Navarro — we’re all working very closely together and we have a common vision in executing and getting a real agreement”.
On Friday, the US Trade Secretary Ross also warned that the US could use tariffs, quotas to enforce China deal. Ross further added: “Trump administration is aiming to finalize a deal to overhaul the US-China trade relationship and the US has indefinitely delayed increasing tariffs on more than $200B in China imports as negotiations progress”.
But, earlier Friday Kudlow sounded quite optimistic as usual and reiterated: “Tremendous progress made on China trade as tariff strategy has helped in China trade talks”. Although Kudlow is unsure whether Chinese President Xi will give his stamp of approval on the agreements, he said, Trump and Xi “could sign and seal a deal”.
Kudlow said in an interview: “We made so much progress last week when the Chinese were here. The agreements made last week represent tremendous progress on IP theft, on forced technology transfer, on ownership, on cyber interference and maybe most importantly on enforcement. What we have is vastly greater than just buying some soybeans. It’s virtually a revolution in American-Chinese trade -- it could be a historical breakthrough.
On late Thursday there was a report that the US is preparing a final trade deal that Trump and Xi could sign in mid-March. But, still China trade deal is not a done deal yet, there are still some serious hurdles as it’s actually a cold war, being fought in the disguise of a trade war.
On late Friday, Canada said it would allow proceedings to extradite Meng, the Huawei CFO to the US, risking a major diplomatic storm between the three countries and may also jeopardize the current US-China trade talks, although Trump has promised to look into the issue at a later stage. But Trump could also use this Huawei CFO issue as leverage in trade talks, which China could object.
Canadian Justice Department officials said Friday that they conducted a “thorough and diligent review of the evidence” and determined it was sufficient to present the case to a judge for extradition. But the move does not reflect a judgment that Meng is either guilty or innocent.
Trump suggested deal or no-deal with China on Thursday, “We are well on our way to doing something special” with China or “we could decide to walk from a deal”. The failure of US-NK nuke truce is probably a big disappointment for Trump, investing almost a year time and also negative for the US-China trade truce as Trump thinks China’s Xi actually controls Kim. Trump said he would walk away from a deal with China too if it didn’t work out.
The USTR Lighthizer was decidedly more hawkish on Wednesday, saying both sides were making “real progress,” but it was still an open question as to whether an enforceable deal could be reached. Lighthizer said in his Senate hearing: “Let me be clear: Much still needs to be done both before an agreement is reached and, more important after it is reached if one is reached”.
On China structural issues, as per reports: “Some progress has been made on the structural changes that the US wants China to make, but it’s now up to China’s President Xi to finalize the terms of an agreement. The Chinese had made offers to strengthen their laws around IP, open their markets to foreign financial services firms and carmakers and bolster laws around the alleged forced transfer of technology. But the Chinese have not made any substantive commitments to other deep structural issues like the overhaul of the state-owned enterprises (SOE), stop the alleged cyber theft or relax their tight restrictions on the movement of data that hamstring foreign technology firms”.
Interestingly, the Chinese ambassador to the US said in an interview on Thursday that some of the changes that the US is seeking the Chinese to make would take five to ten years to accomplish. The Ambassador might be right as China will never change its SOE policy on the US demand, even for a comprehensive trade deal or never acknowledge any cyber theft. Probably, Trump has to dial back on this red line area and sign the trade deal late March.
Now moving from trade politics to economics, on Friday, data shows that the ISM manufacturing PMI slips to 54.2 in February from 56.6 sequentially, lower than the expectations of 55.5. The US dollar was undercut by a subdued ISM manufacturing PMI.
The ISM said:
“Comments from the panel reflect continued expanding business strength, supported by notable demand and output, although both were softer than the prior month. Demand expansion continued, with the New Orders Index reaching the mid-50s, the Customers’ Inventories Index scoring lower and remaining too low, and the Backlog of Orders returning to a low-50s expansion level”.
“Consumption (production and employment) continued to expand but fell a combined 8.9 points from the previous month’s levels. Inputs — expressed as supplier deliveries, inventories and imports — stabilized at a mid-50s level and had a slightly negative impact on the PMI. Inputs continue to reflect an easing business environment, confirmed by Prices Index contraction. Exports continue to expand, at slightly stronger rates compared to January. The manufacturing sector continues to expand, but inputs and prices indicate easing of supply chain constraints”.
The ISM respondent said: "We are concerned about indicators showing a slight recession for the second half of the calendar year. General business conditions started to slow at the end of January, continuing through February”.
USDJPY was also undercut by the report of a drop in Michigan consumer sentiment for February to 93.8 from prior 95.5; lower than the expectations of 95.8.
On Thursday (28th Feb), USDJPY surged on better-than-expected Q4 US GDP and renewed hopes of further Fed hikes in 2019. The US Q4 GDP flashed at +2.6%; although much lower than +3.4% recorded in Q3, it was higher than the expectations of +2.2% (y/y).
In brief, the Q4 GDP was dragged by the lingering US partial government shutdown, while it was boosted by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, private inventory investment, and federal government spending (capex). Those were partly offset by negative contributions from residential fixed investment and state and local government spending. In any way, after better-than-expected US GDP, the USD/US bond yield soared on hopes of further rate hikes in 2019
On Thursday, another data shows that the weekly US initial jobless claims surged to 225K from prior 217K, higher than the expectations of 221K. The continuing jobless claims also jumped to 1805K from prior 1726K and were much higher than the estimate of 1733K. But the more reliable 4-week moving average jobless claims dropped to 229.0K from prior 236.0K.
Overall, the number of US people filing applications for jobless benefits increased week and the number of people taking unemployment benefits for more than one initial week increased to a 10-month high, suggesting some softness in the US labor market. But, all-in-all, the recent softness of some of the US economic data may be transient amid US government shutdown and some slowdown from China/EU.
The primary reason for the synchronized global slowdown may be lingering Trump trade war and being transient in nature, the Fed may not be patient all the year in 2019 and only after that it could consider an “exit” from the current dual QT (Fed hike and B/S tapering).
On the other side, the BOJ is years away from any “exit” (from the QQT, not QT) and still evaluating any forward guidance or “exit strategy”. Kuroda said on Monday that the BOJ will only debate exit strategy actively when the appropriate time comes as the 2% inflation target is still elusive.
The BOJ Governor Kuroda said: “There is no specific stimulus exit strategy yet as it would take significant time to achieve the 2% inflation target. For now, the BOJ will patiently maintain current monetary easing while the economy is sustaining momentum for achieving the BOJ’s price target. But to ensure markets remain stable, it’s important to come up with a strategy and guidance at an appropriate timing on how to proceed with an exit. And, when the appropriate time comes, we will debate at our policy meetings an exit strategy and guidance, and communicate them appropriately”.
Although, various big banks and financials are now increasingly criticizing the BOJ for its ultra-low or zero interest policy and QQE for decades, hampering its NIM and profitability and overall wage growth for the financial sector, Abe & Co is determined to continue its decade-old QQE, even when its virtually not stimulating its domestic economy as expected. But Japanese cheap fund is stimulating EM as-well-as DM economy outside Japan and is an important source of perpetual low cost global monetary stimulus.
For the BOJ, deflation is a big concern rather than inflation and Kuroda & Co is quite satisfied that their “powerful monetary stimulus” has helped to bring Japan out of decade-old deflation like situation and deflationary mindset of the economy/people. Kuroda basically blames low Japanese wage growth and companies for low headline inflation.
Kuroda said on Monday: “The Japanese economy is no longer in deflation and corporate innovation (technology, strategy) is contributing to low inflation. But BOJ took measures in July to improve the situation and regional banks have plenty of capital, while we need to keep watching banks' intermediary functions. The BOJ still intends to maintain powerful easing monetary policy”.
The Japanese PM Abe also in favor of “perpetual” QQE, at least till his term. Abe said Monday in the Parliament: “I believe that Abenomics and BOJ policies have worked. I trust Kuroda to run monetary policy and without such a strong monetary policy, Japan wouldn't escape deflation. I have faith in Kuroda's skills with regards to monetary policy handling”.
The widening monetary policy divergence between the Fed and the BOJ as-well-as ECB, BOE, increasing interest rate, and bond yield differentials are making the US dollar stronger despite Powell’s patience and flexibility. The Fed is now talking about patience at the time of QT and at around +2.50% of US rates, while the BOJ or ECB are again discussing ‘patience’ at the time of active QQE (for Japan) or indirect QE (for the ECB) around 0% rates. Thus Fed’s ‘patience’ and BOJ/ECB’s ‘patience” have ‘hell & haven” difference.
Technically, whatever may be the narrative, USDJPY now has to sustain over 112.35-112.50 for a further rally to 112.90*/113.50-114.00/114.25* and 114.50/114.75-115.15/115.50* in the near term (under bullish case scenario).
On the flip side, sustaining below 112.15, USDJPY may fall to 111.50*/111.25-110.90/110.35* and 109.90/109.70*-109.40/108.50* and further 107.90*/107.50-106.20*/104.70 in the near term (under bear case scenario).
Talking about the US-China trade war, on early Monday there was a report that the US-China is now very close in on trade deal. USDJPY is currently trading around 111.95, edged up +0.05%.
The US may withdraw some China tariffs in lieu of certain trade concessions and withdrawal of certain retaliatory tariffs as part of the trade deal. China made clear in a series of recent negotiations with the US that removing the 10% additional tariffs on $200B of Chinese goods from day one was necessary to finalize any deal. China is offering to lower tariffs on the US farm, chemical, auto, and other products.
The report said: “China and the U.S. are in the final stage of completing a trade deal, with Beijing offering to lower tariffs and other restrictions on the American farm, chemical, auto, and other products. And Washington is considering removing most, if not all, sanctions levied against Chinese products since last year. The agreement is taking shape following February’s talks in Washington, people briefed on the matter on both sides said. They cautioned that hurdles remain, and each side faces possible resistance at home that the terms are too favorable to the other side”.
The report also suggested that the US and China are close in on a trade agreement, which could be signed on March 27 between Trump and Chinese President Xi. In the agreement, China would offer to lower tariffs and restrictions on US agricultural, chemical, auto, and other products. Specific to the car industries, tariffs on imported vehicles would be lowered from the current 15%. China would also speed up the removal of foreign ownership limitations on car joint ventures.
As a trade sweetener, China may also buy $18B natural case (LNG) for Cheniere Energy requirement as part of the deal. On the other hand, the US will lift most, if not all, of the punitive “Trump tariffs” on Chinese imports imposed last year. But the market is also concerned that no details on the core issues of China’s alleged IP theft, forced technology transfer and SOE reform issues, as well as enforcement of the deal.
Meanwhile, further on late Friday, after the market closing, Trump tweeted some interesting China trade comments: “I have asked China to immediately remove all Tariffs on our agricultural products (including beef, pork, etc.) based on the fact that we are moving along nicely with Trade discussions.... and I did not increase their second tranche of Tariffs to 25% on March 1st. This is very important for our great farmers - and me!” Trump’s late Friday China tariffs tweets may be in line with the overall deal report, even without core structural issues, like China’s SOE reform (which Trump also knows very well that it’s almost impossible to implement).
The USTR office has formally scheduled to publish a public notice regarding the extension of trade truce with China. It said in the notice that “it is no longer appropriate to raise tariffs on Chinese products due to the progress of trade negotiations. And, the rate of additional duty for the products covered by the September 2018 action will remain at 10 percent until further notice.” The notice will be published in the Federal Register next week.
China, on its part, said: “There is substantial progress made in trade talks with the US. China-US ties are mutually beneficial, while China to seek cooperation with the US, also to safeguard its sovereignty. China is to strengthen its IP protection and ease foreign investment rules, while stop its case by case foreign investment approvals system.
Meanwhile, China’s National People’s Congress (NPC) begins this week amid lingering Trump trade war and the domestic slowdown. But the market is optimistic that Chinese leadership (Xi) will be able to approve the US-China trade deal (now probably in advanced draft stage), which would be subsequently formally signed between the US (Trump) and China (Xi) late March.
As per the report, the NPC may also approve China’s official GDP growth target between +6.00 to +6.50% with some fiscal stimulus, tax cuts and certain other pro-growth and easing policies. Subsequently, the risk-on sentiment got a boost in the early Asian session on hopes of an imminent US-China trade deal coupled with the Chinese stimulus.
Elsewhere, Trump in his marathon CPAC speech also touched USD and the Fed on Saturday:
Trump said: “I want a dollar that does great for our country, but not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business---we have a gentleman that loves quantitative tightening in the Fed, we have a gentlemen that like a very strong dollar in the Fed--- Can you imagine if we left interest rates where they were, if we didn’t do quantitative tightening---There’s no inflation”.
On early Monday, USDJPY made a session low of 111.72 on Trump tantrum as Trump said the USD is too strong coupled with hopes of an imminent US-China trade truce. The US-China trade/cold war truce is more positive for Chinese Yuan, commodity as-well-as EM currencies and putting some stress on the USD.
But, considering the overall nature of Trump comments against the Fed for a strong dollar policy may be viewed as largely political and moreover, after such Trump tantrum, Powell & Co may also talk more hawkish to prove Fed independence from any political interference. Subsequently, USDJPY recovered in a thin market and made a session high of 112.01. Also, a US-China trade truce will be positive for global as-well-as the US economic growth and the Fed could complete its QT without any trade war worries.
Pivot: 112.35 Support: 111.5 111.25 110.9 Resistance: 112.9 113.5 114 Scenario 1: Strong above 112.35-112.50 and sustaining above 112.90*/113.50-114.00/114.25*, USDJPY may further surge to 114.50/114.75-115.15/115.50* in the near term Scenario 2: Weak below 112.15-112.00 and sustaining below 111.50*/111.25-110.90/110.35*, USDJPY may further plunge to 109.90/109.70*-109.40/108.50* and further 107.90*/107.50-106.20*/104.70 in the near term Comment: Short term range: 110.35-112.50