Market Caution Ahead Of US CPI, JPY Amid Ueda Comments

Market caution ahead of the US Consumer Price Index (CPI) and the impact on the (JPY) following Bank of Japan’s Governor Ueda’s comments.

Market Caution Ahead of US CPI: Investors are exercising caution in anticipation of the US Consumer Price Index (CPI) release.

JPY Under Watch: The JPY is being monitored, in response to remarks by Bank of Japan (BoJ) Governor Kazuo Ueda.

Stabilization of Major US Indices: Major US indices attempted to stabilize at the end of the previous week.

Tech Sector Concerns: Resurgence in inflation and de-risking in the tech sector have limited gains in US markets.

Market Caution Ahead Of US CPI, JPY Amid BoJ’s Ueda Comments

Major US indices tried to stabilize last week, with DJIA up 0.22%, but weak gains persisted due to tech de-risking. Concerns of rising inflation have kept Wall Street cautious, aligning with September’s weak seasonality pattern. Several support lines may need to break before confirming a reversal in the broader upward trend. The feeble gains on the Nasdaq (+0.09%) indicate ongoing uncertainty in the market amid these challenges.

Market Caution and Stabilization of Major US Indices

For now, the VIX has struggled to move higher, seemingly placing its sight back at its year-to-date low. The S&P 500 index trades within its Ichimoku cloud pattern, with buyers defending it successfully in mid-August this year. A potential further downside could put the 4,400 level under scrutiny as a support to maintain. At the beginning of the week, we expect caution to prevail as we approach the Fed blackout period and the release of the US Consumer Price Index (CPI). This data will significantly influence rate expectations before the upcoming Federal Open Market Committee (FOMC) meeting.
Market expectations firmly price the Fed to maintain rates during the September meeting. The central bank’s guidance of conducting policymaking on a meeting-by-meeting basis creates uncertainty for the November meeting. This aligns with the Fed’s previous communication of a final rate hike by year-end before entering a prolonged pause.

Asia Open

Asian stocks indicate a negative open, with Nikkei down 0.37%, ASX down 0.29%, and KOSPI down 0.12%, reacting to BoJ Governor Ueda’s monetary policy comments. Ueda’s remarks suggest potential policy normalization, including ending negative interest rates, but emphasize patience. Slightly hawkish comments have boosted Japan’s 10-year yields to new highs since 2014, narrowing the yield gap with the US. However, near-term hawkish expectations might encounter disappointment, as the central bank could defer any rate decision until 2024, given its patient stance.

Technical Analysis and USD/JPY Support Levels

The 145.80 level could serve as crucial support for USD/JPY, marking the upper bound of a previous yen-buying intervention in September 2022. While declining MACD and lower RSI highs indicate diminishing upward momentum, the broader uptrend may endure unless multiple support levels break. US Treasury yields have remained strong before the upcoming US CPI release, reflecting expectations of prolonged high rates amid anticipated US headline inflation resurgence (estimated at 3.6% compared to the previous 3.2%).

While the US dollar continues to trade above its key 200-day moving average (MA), a potential bearish divergence in the making on the daily RSI may point to some near-term indecision with ebbing upward momentum. Ahead, the 105.00 level will be a crucial resistance to overcome, which marks the upper bound of a long-ranging pattern since the start of the year. Failing to cross the level may leave the 103.12 level on watch as immediate support. 

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