- Evergrande’s risk of spillover weighs on the market sentiment.
- US 10-year bond yields are up 7% in the week, underpins the USD/JPY.
- Fed prospects of bond tapering also weigh in the market appetite.
- Fed’s Mester: “the Fed would take action if inflation is not consistent with the Fed’s goals".
Earlier in the Asian session, the USD/JPY traded in a narrow range of 11 pips, within 110.23-34, but as European traders got to their desk, the pair is edging higher. At the time of writing, USD/JPY is trading at 110.69, recording a gain of 0.34% during the day
The market sentiment is in a risk-off environment. On Thursday, Evergrande’s shares were up 15%. Nevertheless, worries about defaulting its $83.5 interest of US dollar-denominated bond on Thursday clouds the outlook. According to Reuters, the payment of interest has not been made, leaving investors scrambling for safe-haven assets. Adding to this, the Fed’s plan to cut its $120 billion in monthly bond purchases abate the appetite for riskier assets.
US 10-year yields up almost 7% in the week nearly two-month highs underpins the USD/JPY
Also weighing on the USD/JPY is the 10-year benchmark rate, which rises four basis points (bps) in the day, currently at 1.454%, underpinning the greenback. The US Dollar Index, which tracks the buck’s performance versus a basket of six peers, is recovering some of Thursday’s losses, up 0.28%, sitting at 93.35.
Moreover, in the last FOMC meeting, the Fed said that tapering of its monthly bond-purchasing program “may soon be warranted” but fail to deliver when and how it may begin the reduction of its purchases. Some analysts “speculate” that they will lay out the date and the size of the reduction in its pandemic-related stimulus in the November meeting.
Earlier in the day, Cleveland’s Fed President, Loretta Mester, hit the wires. She said they would take action if inflation is not consistent with the Fed’s goals. Further, she added, “Asset purchases are not doing as much now, and I think the Fed can reduce the pace,” further cementing the general overview of the Fed regarding the reduction of its QE program.
Moving on to economic data, the US Census Bureau released the New Home Sales for August rose to 0.74M better than the 0.7M foreseen by economists. The market’s reaction was null. However, as the day progresses, the US bond yields along with the broad market mood might influence the USD/JPY pair
KEY TECHNICAL LEVELS TO WATCH
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