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USD/JPY Prints Sixth Lower Low; Vols Bid Pre-CPI

FOREX
  • USD/JPY has already secured the sixth consecutive session of lower lows today, with the losing streak extending through the 50-dma support and swinging the 14-day RSI closer to technically oversold territory (although not there yet, RSI currently at 37 points - lowest since January).
  • This marks the longest streak of lower lows since early November last year - a week or two after the last confirmed Japanese FX intervention on 24th October. In early November, lower lows were printed over 8 sessions, spanning a fall of over 7% in the pair. Rate differentials and an unwind of extreme positioning remains responsible, raising the focus on this Friday's CFTC CoT release (reflecting data as of the close yesterday).
  • The greenback sits lower, with the dollar on the backfoot against all others in G10, mirroring the continued modest softening of market-implied Fed rate expectations. The USD Index has inched to new lows, narrowing the gap with the May low at 101.027.
  • Looking ahead, the US CPI release takes centre stage, with market consensus looking for inflation to slow sharply on both the headline and core readings (down to 3.1% and 5.0% respectively).
  • Markets are clearly primed for an outsized market reaction to today's release, with overnight implied vols well bid across G10 FX: EUR/USD overnight vols have added 8 points to trade at the highest since mid-June, while USD/JPY o/n vols have cleared 17 points ahead of the inflation release at 1330BST/0830ET.
  • The frequency of central bank speakers also picks up after a quieter start to the week: Fed's Barkin, Kashkari, Bostic and Mester are set to speak as well as ECB's Vujcic and Lane. The Bank of Canada decision is also due, with the BoC seen resuming their tightening cycle with a 25bps hike to 5.00%.
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