JPY: Firmer Ahead Of BoJ, But Gradual Hike Path May Keep Dips Supported
Jan-23 22:11
USD/JPY edged away from recent highs as Thursday's session unfolded. The pair getting to 155.75, 100pips off earlier highs of 156.75. We track near 156.00/05 in early Friday dealings. Yen was up around 0.30% for Thursday's session, a marginal outperformer in the G10 space. Broader USD indices were down slightly, with market sentiment still heavily focused on rhetoric from US President Trump.
- USD/JPY technicals are little changed, with bullish conditions still prevailing. Support to watch is 155.08, the 50-day EMA, and 154.64, a trendline drawn from the Sep 16 ‘24 high. A clear breach of both levels would highlight a stronger reversal. Key resistance and the bull trigger is 158.87, the Jan 10 high.
- The BoJ is widely expected to raise rates by 25bps today. If that is realized focus will shift to the outlook we expect the BoJ to maintain its economic growth forecast but slightly raise its inflation outlook. Language used by the BoJ and Governor Ueda will also be in focus, but our sense is that the central bank will signal further rate adjustments will be gradual. The current economic backdrop doesn't suggest the BoJ is falling behind the curve.
- This may leave USD/JPY biased to be supported on dips, with the low 155.00/high 154.00 region in focus. Implied overnight option vol for USD/JPY is higher but at 17.63% is not beyond levels seen prior to some 2024 policy meeting outcomes.
- In the option expiry space, note the following for NY cut later: Y155.00($1.7bln), Y156.00($987mln), Y156.15-20($561mln), Y156.50-60($734mln).
- Prior to the BoJ we have Dec National CPI, headline is projected at 3.4% from 2.9% prior. Core is forecast at 3.0% versus 2.7% prior.
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- US Data/Speaker Calendar (prior, estimate)
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- Dec-26 0830 Continuing Claims (1.874M, 1.881M)
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STIR: FED Reverse Repo Operation
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US TSYS: Late Session Rebound, Post-Auction Short Sets Unwound
Dec-24 18:19
- Treasury futures look to finish Tuesday's shortened Christmas-eve session near session highs, TYH5 +2.5 at 107-17 vs. 108-19 high, after trading much of the session weaker. The 10Y contract had breached a couple levels of technical support on it's way down to 108-09.5 low, 10Y yield climbing to 4.8160% high last seen in late May.
- Rates recovered soon after the $70B 5Y note auction (91282CMD0) stopped 0.2bp through (second consecutive stop since June): drawing 4.478% high yield vs. 4.480% WI; 2.40x bid-to-cover vs. 2.43x for the prior auction.
- The bounce helped projected rate cuts into early 2025 look steady to slightly higher vs. this morning (*) as follows: Jan'25 steady at -2.1bp, Mar'25 at -12.6bp (-11.7bp), May'25 -17.2bp (-16.7bp), Jun'25 -24.6bp (-23.1bp).
- No substantive reaction to regional Fed data:
- -6.0 reading for December's Philadelphia Fed's Nonmanufacturing current regional activity index (-2.4 expected) represented a steady outturn from -5.9 prior, and suggested a regional services sector that remained "weak", per the report.
- Richmond Fed's regional manufacturing survey index came in in at -10 as expected in December, the best reading since June (-14 prior). The shipments and employment subindices were flat, but new orders saw a solid improvement to -11 from -19 prior.
- Markets closed for Christmas holiday Wednesday, Globex pre-open Wednesday evening at 1700ET/re-open at 1800ET. Full sessions Thursday & Friday.
