USDJPY adds 1.0% to pare US inflation-led slump above 142.00, US Michigan CSI eyed

• USDJPY grinds higher around intraday top while consolidating the biggest daily slump in 14 years.
• Talks over Japan’s meddling, China’s covid conditions trigger the Yen pair’s rebound amid a sluggish session.
• Biden-Kishida meet, preliminary readings of US Michigan Consumer Sentiment Index (CSI) could entertain traders.

USDJPY seesaws around the intraday high near 142.50 as it consolidates the biggest daily fall since October 1998 during Friday’s Asian session. In doing so, the yen pair takes clues from the market’s slightly sour sentiment, as well as inactive US Treasury yields, amid the sluggish session.

That said, the fears of coronavirus renew as China’s Beijing reports the biggest daily jump in the covid cases in over a year. For the nation as a whole, the daily coronavirus numbers grew past 10,000 for the first time in seven months. Elsewhere, the US 10-year Treasury yields remain inactive around the monthly low near 3.81%, flashed on Thursday, after registering the heaviest slump since early December 2021.

The reason for an inactive bond market could be linked to the bank holidays in the US and Canada, as well as the market’s waiting for more clues to confirm the slower rate hikes of the US Federal Reserve (Fed).

It should be noted that the increasing fears of Japan’s meddling in the forex market to defend the Yen and the Bank of Japan’s (BOJ) defense of the easy money policy, while also hoping for an economic rebound in the next years, also underpin the USDJPY rebound.

On Thursday, the US Consumer Price Index (CPI) for October surprised markets by declining to 7.7% YoY, the lowest since last March, versus 8.0% expected and 8.2% prior. More importantly, the Core CPI dropped to 6.3% compared to 6.5% market forecasts and 6.6% previous readings.

Following the data, Dallas Federal Reserve President Lorie Logan said that October CPI inflation data is a welcome relief while adding that (it) may soon be appropriate to slow pace of rate increases. On the same line, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday that the US Federal Reserve could slow the rate hike pace in the coming months, as reported by Reuters. It should be noted that Kansas City Federal Reserve President Esther George, Federal Reserve Bank of Cleveland President Loretta Mester and San Francisco Fed President Mary Daly also recently promoted easy rate hikes for future meetings.

As a result, the CME’s FedWatch Tool signals a nearly 80% probability of the Fed’s 50 basis points (bps) rate hike in December versus around 55% just following the last week’s Fed meeting.

Given the latest hopes of an easy Fed rate hike in December, coupled with the BOJ’s favor for easy money policies, the USDJPY pair is likely to remain weak. However, today’s first readings of the US Michigan Consumer Sentiment Index (CSI) for November, expected 59.5 versus 59.9 prior, will precede Sunday’s meeting between US President Joe Biden and Japan’s Prime Minister (PM) Fumio Kishida to offer clear directions.

Technical analysis

An upward-sloping support line from early March and the 100-DMA challenge USDJPY bears around 141.00-140.85 area amid the oversold RSI conditions. The recovery moves, however, need to cross the late October swing low around 145.10 to convince buyers.