USDJPY – Five Minute Chart – 101125
Capitol Hill in the Spotlight
While the BoJ Summary of Opinions gave insights into the conditions needed for a rate hike, developments on Capitol Hill will also influence USD/JPY trends. Reports of lawmakers nearing an agreement on a federal budget lifted demand for the US dollar.
The Kobeissi Letter commented on the US Senate impasse nearing an end, stating:
“US Congress is reportedly close to reaching a deal to reopen the government after Senate Democrats signaled they are ready to back a bipartisan proposal. At least 10 Democrats are expected to support advancing a spending and short-term funding bill.”
The Kobeissi Letter added:
“A short-term funding bill is now expected to receive enough support to reopen the US government through January 31st. The measure would provide full-year funding for SNAP and Veterans Affairs.”
USD/JPY rose 0.25% to 153.796 in early trading on Monday, November 10. A reopening would limit the shutdown’s impact on the US economy. Furthermore, a reopening could expedite the release of key inflation and labor market data ahead of the Fed’s December interest rate decision. The data would provide FOMC members with the necessary information to make an informed policy decision.
Fed Speakers to Fuel Fed Rate Cut Speculation
While market focus will be on Capitol Hill, traders should closely monitor FOMC members’ speeches. Views on inflation, the labor market, and the economic outlook will influence sentiment toward the Fed rate path.
According to the CME FedWatch Tool, the chances of a Fed rate cut in December were finely balanced, rising from 63.0% on October 31 to 66.9% on November 7. Growing support for further monetary policy easing could push USD/JPY toward 153. On the other hand, calls to delay a cut over concerns about elevated inflation may send the pair toward 155.
Despite the potential boost from a US government reopening, the near-term USD/JPY outlook remains bearish. Weakening US labor market data may put pressure on the Fed to consider further policy easing, weighing on demand for the US dollar.
USD/JPY Scenarios: Diverging Monetary Policies
Bearish USD/JPY Scenario: Hawkish BoJ commentary, intervention warnings, and dovish Fed rhetoric could push USD/JPY toward 153.
Bullish USD/JPY Scenario: Dovish BoJ cues and hawkish Fed comments could send USD/JPY toward 155.
AloJapan.com