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Jul 28 - 05:55 PM

COMMENT - US Recap: EUR/USD Up On Soft US Inflation, Big Post-BoJ EUR/JPY Rebound

By Randolph Donney  —  Jul 28 - 02:45 PM

FX traders took a wild ride on Friday as the yen surged and then tumbled following the BoJ's policy adjustment while EUR/USD and sterling overcame early losses on below forecast U.S. core PCE, employment cost index and Michigan sentiment.

A good portion of EUR/USD's recovery for a 0.4% gain was due to EUR/JPY's blistering 1.4% rise following a brief dive to its lowest since June 14 on the initial report of the BoJ doubling of its hard cap on 10-year JGB yields to 1%, that as those yields only got as high as 0.579% after the meeting.

That setup also allowed USD/JPY to rebound to a 1% gain after initially plunging to its lowest since July 18 and holding key support by 138.
That rebound has so far been stopped near the falling 21-DMA at 141.13, which capped all rallies over the last week.

Treasury yields slightly trimmed early losses, but 10-year Treasury-JGB yields spreads were still down 16bp on the day largely due to the 13bp rise in JGB yields and USD/JPY's medium-term outlook is bearish.

Sterling rose 0.5% after earlier trading at its lowest since July 10.
Prices have already erased July's big breakout above June highs, with the lingering prospect of the BoE having far more tightening to do than the Fed, given differing spreads between policy and inflation rates.

The BoJ's policy tweak and weaker Australian data left Aussie down 0.8%.
USD/CNH fell 0.33% after an early rally ran into stiff resistance and yet another Chinese government notice of broadening efforts to support the struggling economy amid potential deflation risks.

Next week's U.S. June JOLTS, July ISM manufacturing and services PMIs and employment reports look key for the data-dependent Fed and dollar.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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