USD/JPY dips below 135.00 as US bond yields fall

• USD/JPY tumbled, due to its high correlation with 10-year US Treasury yields, falling below 2.80%.
• Fed’s Bowman: The Fed should consider 75 basis points in future meetings.
• The US CPI and PPI for July, both inflation readings are in the spotlight.

The USD/JPY starts the week on the wrong foot, dipping below the 50 day EMA, with a weakening US dollar, undermined by falling US Treasury yields, amid bullish sentiment, despite concerns of an aggressive Fed and the nervousness of China and the US on Taiwan.

At the time of writing, USD/JPY is trading at 134.63 after hitting a daily high of 135.58. However, appetite for US Treasuries is keeping the US 10-year bond yield down five basis points at 2.778%, thus USD/JPY broke below the 50-day EMA at 134.98.

USD/JPY falls on lower US bond yields, although the narrative supports the dollar

A light U.S. calendar has investors reassessing last week’s jobs report, which poured cold water on recession fears and fueled expectations of a 75 basis point Federal Reserve rate hike. However, with the July US consumer price index (CPI) looming, attention turned to expectations that a lower reading could deter the US central bank from tightening rates. aggressively. Meanwhile, the Fed money market futures odds of a 75 basis point hike stand at 90%, up from 76.5% last week.

That said, Fed speakers in the past week have been hawkish since the dovish reaction following the FOMC meeting. In addition, policymakers reiterated the Fed’s commitment to reduce inflation. Over the weekend, Michell Bowman, a member of the Fed’s board of directors, reiterated that the Fed should consider rate hikes of 75 basis points at future meetings to bring inflation back up to the central bank’s target. He added that he would depend on the data for the following meetings.

On the other hand, in the Japanese calendar, bank loans for July were published, which increased by 1.8% year-on-year, doubling the estimates. At the same time, the current account deficit narrowed from 703 billion yen to 132.4 billion yen.

However, USD/JPY remains aloof from the current economic environment throughout the day. Even though the pair has moved below the 50 day EMA, unless the sellers make a daily close below the daily high of 4th Aug at 134.42, the buyers remain in command.

what to see

Preliminary Orders for Machine Tools will be published in Japan. In the United States, the NFIB Small Business Optimism Index, Consumer Inflation Expectations and July IBD/TIPP Economic Optimism will be released, estimated at 38.6.

Key USD/JPY Technical Levels