USDJPY drops as traders await BoJ’s last play for doves amid pullback in yields

Market sentiment remains dicey as traders await this week’s key central bank monetary policy meeting, namely the Bank of Japan (BoJ), amid fears of witnessing an ultra-dovish move to prepare traders for future tightening. 

On the other hand, an absence of major surprises from Wednesday’s Fed Chair Powell’s testimony joined mixed US data to allow the US Dollar to brace for Friday’s US jobs report. It’s worth noting that the US Treasury bond yields ease from multi-day highs whereas the stock futures and Asia-Pacific equities traded mixed despite mixed releases.

As a result, the USDJPY pair prints the first daily loss in four while easing from a nearly three-month high. Further, AUDUSD and NZDUSD also benefit from the market’s positioning for the key Friday whereas GBPUSD and USDCAD remain sluggish.

Moving on, prices of Gold and Crude oil print mild gains but stay mostly depressed amid risk-negative headlines and downbeat China data.

Elsewhere, BTCUSD and ETHUSD lick their wounds at three-week lows amid fears of looming heavy options expiry.

Following are the latest moves of the key assets:

• Brent oil grinds lower at the one-week bottom, mildly bid near $82.80 at the latest.
• Gold prints minor gains around $1,815 as traders struggle for clear directions.
• USD Index extends pullback from three-month high to 105.50 as we write.
• Wall Street closed mixed and so did equities in the Asia-Pacific region while shares in Europe and the UK traded with smaller losses at the latest.
• BTCUSD and ETHUSD both remain indecisive around $21,700 and $1,540 levels respectively.

Markets slid into consolidation phase

Federal Reserve Chairman’s comments during the second day of semi-annual testimony repeated most of the previous day’s signals that favor policy hawks. However, the emphasis on data dependency seemed to have gained the traders’ attention to consolidating the recent US Dollar gains. On the same line could be the mixed signals for Friday’s US jobs report. The same joins the global policymakers’ efforts to push back the recession to trigger the retreat in the US Treasury bond yields and weigh on the USDJPY prices afterward.

Also to note are the fears of higher US taxes and downbeat China inflation that cap the risk barometers like the AUDUSD pair. Further, New Zealand’s ties with China seemed to have loosened as the Kiwi pair traces its Aussie counterpart to print mild gains of late.

Crude oil benefits from upbeat weekly inventory data and a pullback in the US Dollar, which in turn allowed the Gold bears to take a breather.

Elsewhere, US law enforcement’s seizure of Bitcoins joins an expiry of nearly $560 million open interest to challenge the BTCUSD and ETHUSD rebound from the monthly low.

• Strong buy: USDJPY
• Strong sell: ETHUSD, GBPUSD
• Buy: USD Index, USDCAD, Nasdaq, EURUSD
• Sell: DAX, FTSE 100, gold, BTCUSD, AUDUSD

More clues for US NFP, BoJ eyed

Although the economic calendar appears somewhat lighter on Thursday, early signals of Friday’s US Nonfarm Payrolls (NFP) and Unemployment Rate, as well as the Average Hourly Earnings, will be important to watch for clear directions. Also important to track will be the comments from Japanese policymakers and the global bond market moves. Overall, Thursday is likely to be a positioning day for the key Friday.

May the trading luck be with you!