USD/JPY: King Dollar Dominates, But A Correction Cannot Be Ruled Out

This was the week: Triple boost for the USD

The USD enjoyed three positive factors.

1) Data: The ADP NFP showed a gain of 230K jobs, significantly above expectations. The ISM Non-Manufacturing PMI hit the highest levels ever. That gave the greenback the initial boost.

2) Yields: After getting closer to the previous peak of 3.13%, the benchmark 10-year Treasury yield shot higher and hit 3.23%, the highest since 2011. A higher return makes the greenback more attractive.

3) Powell: In his fourth public appearance in a week, Fed Chair Fed provided a surprise. He explicitly said that the Fed’s policy could turn temporarily tight: interest rates above the level of inflation. This comment of his added further support.

The US reached a deal with Canada on a new NAFTA deal, now called the USMCA. The news is not supportive to the safe-haven Japanese Yen. A lack of any developments on the Chinese front also diminished demand for the Yen.

On the other hand, the Trump Administration broadened its broadside against China. Vice President Mike Pence accused the world’s second-largest economy of industrial espionage, allegations that Beijing denied. Tech stocks, especially in China, did not like it.

US events: Inflation stands out

US traders are enjoying the Colombus Day holiday on Monday, an event that is set to lower trading volumes. A significant release awaits traders on Wednesday, the Producer Price Index (PPI) for September which serves as a warm-up to the inflation report on the following day. The focus is on the annual core figure that hit 2.3% in August.

The primary economic indicator of the week is due on Thursday. The US publishes the Consumer Price Index (CPI) report for September. Back in August, Core CPI suffered a setback with a deceleration from 2.4% to 2.2% after several months of accelerations. The Fed closely follows the Core PCE but it lags the Core CPI released now. Apart from the annual figure, the monthly Core CPI and the headline CPI are important.