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JPY Under Pressure As Core Yields Reverse Monday Price Action

FOREX
  • The Japanese Yen was the poorest performer in G10 FX on Tuesday as global fixed income markets reversed Monday’s price action and core yields took a leg higher.
  • USDJPY (+0.68%) took out the Monday highs in early Europe and the rally gained momentum as we broke back above 134, narrowing the gap with the pre-US CPI levels for the pair around the 135 mark. Firm short-term resistance has been defined at 135.58, the Aug 8 high.
  • USDJPY’s ascent lent overall support to the dollar index, which extended north of the Monday highs and briefly made a new high for August at 106.94. However, greenback momentum from this point waned and after the DXY had reversed to unchanged levels on the day, FX markets were happy to consolidate ahead of tomorrow’s data.
  • Both EUR and GBP traded higher as a result of the greenback’s turnaround, however they both remain comfortably below the week’s opening levels as the European energy crisis continues to loom in the backdrop.
  • The Chinese offshore Yuan saw a moderate pullback after Monday’s significant drop. USDCNH (-0.30%) dropped back to 6.7908 and looks set to close around yesterday’s breakout point around 6.7950.
  • Focus overnight will be on the RBNZ rate decision. With a 50bp OCR hike seen as a done deal this week, the focus will fall on the Reserve Bank's forward-looking comments, with particular emphasis on the OCR track. The tone of this MPS will be set by the combination of hints on how policymakers are planning to handle the inflation/growth dilemma further down the road.
  • Elsewhere, Australia wage price index data will precede the Uk’s release of July CPI and Eurozone GDP. The focus will then turn to US July Retail Sales and the release of the FOMC minutes.
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