- USD/JPY eyes 110, but risk-off fundamentals stacked against the bulls should the US stock market finally give out.
- US dollar remains fighting fit, despite US yields which US data continue to impress and remains the cleaners of dirty shirts.
- The coronavirus is a huge concern and the stock market could be somewhat too complacent.
- All ars to the ground for Fed’s chair Powell in his semi-annual congressional testimony in front of a House committee in the NY morning.
USD/JPY ranged between 109.65 and 109.85 overnight and is currently trading between 109.81 in a tight range ahead of major events. The market remains in a risk-off mode which is supportive of the yen, but the US dollar is taking up the flack overall with solid data and the coronavirus.
Before getting into the latest developments of the virus, there is a major focus again on US yields and the Federal Reserve this week. The US 2-year treasury yields fell from 1.41% to 1.38%, while the 10-year yields moved from 1.59% to 1.55%. Markets have been pricing a 10% chance of easing at the next Fed decision on 18 March, and a terminal rate of 1.12% (vs Fed’s mid-rate at 1.63% currently), as noted by analysts at Westpac. While stock markets remain solid, with the US benchmarks rising to new highs, there is an underbelly of discontent in the bond markets which could be a warning that investors are complacent still. Gold prices are another telling sign that despite the rise in equities, prices there are rising as well.
For the US dollar, this is probably good news as it is usually considered as the cleaners of shirty shirts in the laundry basket at times of risk-off and considering its recent run of positive data, there could still be upside to come yet. Overnight, Fed governor Bowman said the economic backdrop looks “very favourable”, and that the economy should continue to grow at a moderate pace, with low unemployment, and an expected rise in inflation to its 2% target. We will now wait to hear from Fed chair Powell begins his semi-annual congressional testimony in front of a House committee in the NY morning.
Jerome Powell’s Semi-Annual Testimony expectations
“We expect a dovish tone, similar to in the January 29 press briefing. The policy is on hold for now, but with an easing bias, reflecting a new approach to inflation as well as lingering growth concerns. Officials appear to have adopted some form of average inflation targeting, even as the review continues. The Shelton and Waller nomination hearings will likely be dovish as well,”
analysts at TD Securities explained.
We will also get both Consumer Price Index and Retail Sales as the next major data points
However, with the latest figures from China’s Health Commission, it now says that he coronavirus has already claimed more than 1,000 lives by the end of February 10 and about 40,000 cases of coronavirus. On Sunday alone, 97 people died which was the highest daily death toll since the outbreak began. Almost 6,500 of the affected patients were in critical condition, authorities said Monday. The statistics mention that the death toll has risen to 1,011 with the epicenter Hubei adding 2,097 confirmed cases. It’s worth mentioning that there have been 103 deaths on Monday due to the fatal epidemic.