China COVID Rules Adjustment Triggers Risk-On Flows, USD/JPY Trims Early Gains

USD/JPY gained in a relief rally as Tokyo participants went online following the pair's 3.75% sell-off Thursday in reaction to below-forecast U.S. CPI figures. Buying momentum ran out of steam at Y142.48 and the rate halved its initial gains, albeit the yen remains the worst performer in G10 FX space.

• The partial unwinding of USD/JPY gains was driven by a pullback in broader greenback strength, with the BBDXY index refreshing its 2-month lows. The USD came under further pressure as risk sentiment picked up late doors, which allowed the BBDXY to fall below 1,290. Note that cash Tsys did not trade because of a public holiday in the U.S.
• Reports of China loosening some COVID-19 controls triggered a round of risk-on flows, with USD/CNH staging a clean breach of yesterday's low and moving below its 50-DMA for the first time since mid-Aug. Health authorities scrapped COVID flight suspensions and reduced quarantine times.
• The Aussie cemented its position as the best G10 performer on reports from China. AUD/USD broke above yesterday's high as a result, while NZD/USD tested yesterday's peak. Antipodean cross AUD/NZD attacked resistance from its 200-DMA.
• On tap today are UK GDP & activity indicators, final German CPI & flash U.S. Uni. of Mich. Sentiment. Central bank speaker slate features ECB's Holzmann, Panetta, de Guindos, Lane, de Cos & Centeno, as well as BoE's Haskel & Tenreyro.