USD/JPY: The Dollar Wins When Safe-Havens Lose

This was the week: Stocks recover, and so does the pair

US President Donald Trump tweeted about a fruitful conversation with Chinese President Xi Jinping. The phone call came ahead of their meeting at the G-20 Meetings in Buenos Aires later this month. The top topic is trade. The clash between the world’s largest economies over Trump’s tariffs weighed is already taking its toll on the global economy and has hurt sentiment.

The tweet was one of the reasons that stocks finally made a more meaningful recovery. While there were some bumps initially, the US and other stocks recovered. The better market mood pushed both the greenback and the yen lower, but the American currency came out on top.

Brexit optimism also helped. Hopes for reaching an accord on November 21st and even a report that the UK and the EU reached a deal on financial services not only triggered a USD rally but also improved the global mood. On the other hand, the Italian crisis remains in full swing after the euro zone’s third-largest economy reported no growth in the third quarter.

US data was mixed: the ADP Non-Farm Payrolls beat expectations for October, but it did so also for September’s report while the official outcome disappointed. The ISM Manufacturing PMI missed with 57.7, but this remains an upbeat level. The Fed’s preferred measure of inflation, the Core PCE Price Index, came out at 2%, as expected.

The Bank of Japan left its policy unchanged as expected but had to lower its inflation forecasts, matching them with reality. This somewhat weighed on the yen and is one of the reasons that the greenback came out on top in a bad week for both safe-haven currencies.

US events: Mid-Terms, followed by the Fed

The ISM Non-Manufacturing PMI is published after the Non-Farm Payrolls this time. While it will not shape expectations, it will have have the full stage to itself. Back in September, the indicator surprised with 61.6 points, an outstanding figure. A slide will likely be seen now.