What’s next? – USDJPY 01.05.18

The dollar was trading 0.13 percent higher vs the Japanese yen at 109.47 as of 09:45 GMT on Tuesday, with the American currency extending gains on the back of solid inflation data.

The US dollar index, which measures the greenback’s strength against a basket of six major competitors, was 0.12 percent higher at 91.45 by the time of this writing.

The US 10-year bond yield remained below 3 percent despite data suggesting inflation is nearing Federal Reserve’s target and further monetary policy adjustments might come soon.

The personal consumption expenditures (PCE) price index - Fed’s favorite inflation gauge - added 1.9 percent year over year in March, close to the regulator’s 2 percent target.

This result came only a day before the Federal Reserve Open Market Committee (FOMC) kicked off a new two-day monetary policy meeting.

Inflation and labor market conditions are the two most relevant measures for policymakers to justify further monetary policy changes. Labor data is expected on Friday.

However, Fed funds tracked by CME Group’s FedWatch program show a vast majority of market participants aren’t waiting for interest rate changes this month.

The Federal Reserve hike interest rates in March by 25 basis points, leaving it in a range between 1.50 percent and 1.75 percent. Two more rate moves are seen in 2018.

Ahead in today’s session, Markit Economics will present April manufacturing activity index at 13:45 GMT. The Institute for Supply Management will release its own manufacturing PMI fifteen minutes later. The American Petroleum Institute is expected to release its weekly report on crude and refined products stockpiles by 20:30 GMT.

The pair is clearly moving to an upward extension as it approaches the technical resistance area near 109.66 - 110.85. Profit taking could be expected ahead of Friday’s US nonfarm payrolls.

FortFS