The US dollar soars as the yen tumbles ahead of the Fed’s rate decision. Will USD/JPY go higher?

US Dollar, USD/JPY, Crude Oil, Gold, China, PBOC, Fed, BoJ – Talking Points

• US dollar continues to strengthen as commodities reel
• China faces hurdles to growth as zero Covid-19 case policy takes impact
• The Japanese yen is suffering from higher import costs.Where to find USD/JPY?

The US Dollar hit a 5-year high against the Japanese Yen today, trading above 118.

In a risky environment, the yen would normally see buyers emerge, but rising oil and commodity prices are playing against it for now. The Fed’s expected rate hike against the dovish Bank of Japan also undermines it.

Treasury yields continued to rise across the curve, with the benchmark 10-year note hitting a 3-year high near 2.14%.

Higher interest rates have pushed gold down further, trading below US$1,930 an ounce today, a far cry from last week’s high of US$2,070.

Similarly, WTI crude oil futures are now probing below US$100, well below last week’s high of US$130.50.

The Dow Jones ended its cash session flat, while the S&P 500 and Nasdaq fell. Futures are pointing to small gains for their open at press time.

The PBOC left the Medium Term Lending Facility (MLF) unchanged at 2.85% as the market looked for a cut to 2.75%.

Chinese data today was stronger than expected, with year-to-date industrial production coming in at 7.5% YoY instead of the expected 4.0%.

China has seen the re-emergence of Covid-19 and Shenzhen has gone into lockdown along with many other provinces. Shenzhen is a major port and the location of many important Chinese technology companies.

As a result, stocks in Hong Kong and mainland China fell and Australia’s ASX 200 also went south as commodities continued to fall. AUD and NZD were the main underperforming currencies today.

Japan’s Nikkei 225 index swam against the tide, posting small gains as the weaker yen provided a boost.

In the future, data on housing starts in Canada will be published just before the PPI in the United States.

The full economic calendar can be viewed here.

USD/JPY technical analysis

USD/JPY surged higher to break above an ascending trendline. The next level of potential resistance is the January 2017 high at 118.551 and the December 2016 high at 118.665.

In a movement like this, it is not surprising that in the short, medium and long term simple moving averages (SMA) all show a positive gradient and are below the price. This may indicate bullish momentum.

On the downside, support could be at the former peak, now the pivot point of 116.353 or the 10-day SMA, currently at 116.230.

Graphic vscreated in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter