Dollar/Yen Falls With Stocks And Looks Forward To Powell

  • The USD/JPY was pressured by mounting fears on trade.
  • Powell’s testimony stands out in a busy week.
  • The technical picture is bearish for the pair.

This was the week: Trade hopes fade, the US economy looks good

US President Donald Trump and his Chinese counterpart Xi Jinping agreed on a 90-day trade truce in their meeting in Buenos Aires. However, the statements from Washington and Beijing differed. It took the Chinese authorities quite some time to acknowledge some of the American comments on pledges to buy agricultural goods, and they did not echo Trump’s tweet about dropping car tariffs.

The most significant blow to the hopes for a trade truce came after Canadian authorities arrested Meng Wanzhou, CFO of Huawei and the founder’s only child. She was detained in Vancouver upon a request of a US court. The move dampened the atmosphere and weighed on USD/JPY.

US data was mostly positive with the ISM Manufacturing PMI’s beating expectations. However, the ADP NFP slightly missed expectations.

Fed Chair Jerome Powell offered a more upbeat tone in a public appearance, praising the strength of the US economy and sounding bullish on the labor market in particular. His words in the previous week were perceived as dovish, albeit for no good reason.

Other Fed officials provided a broader array of opinions, with some wanting to adopt a “wait and see” approach soon.

Bank of Japan officials continued stressing that they will continue with their ultra-loose monetary policy, unsurprising given the low levels of inflation.

US events: Inflation, retail sales, and Powell’s testimony

After a calm start to the week regarding economic indicators, the US releases the Consumer Price Index (CPI) report for November on Wednesday. Monthly rises in prices were OK in October, but the year over year Core CPI disappointed by decelerating to 2.1%. The slide in prices was later reflected in the Fed’s preferred measure of inflation, the Core PCE, which slid to 1.8% YoY.

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