19 Aug 2022

USD/JPY has rallied to fresh highs on parabolic US dollar rally

USD/JPY bulls have moved in on geopolitical angst and the hawkish Fed narrative.
Bears are lurking in resistance that could lead to a significant correction.

USD/JPY has rallied to fresh session highs on Friday in the Tokyo open as news dropped that could stir a geopolitical risk-off scene among financial markets in the days ahead. At the time of writing, USD/JPY is trading 0.11% higher with the price reaching a fresh 107.687 high, rallying from 107.467.

Bloomberg's article circulated the wires as the Tokyo session opened that reported on President Xi Jinping's and Russian leader Vladimir Putin's plans to attend a Group of 20 summit in the resort island of Bali later this year, Indonesian President Joko Widodo said.

“Xi Jinping will come. President Putin has also told me he will come,” Jokowi, as the president is known, said in an interview with Bloomberg News Editor-in-Chief John Micklethwait on Thursday. It was the first time the leader of the world’s fourth-most populous nation confirmed both of them were planning to show up at the November summit.

The prospects are that this could stir up some geopolitical angst given the Ukraine crisis. For instance, the West could decide to boycott the gathering, for instance. In an interview with ZDF, European Commission President Ursula von der Leyen said that: “We have to consider very carefully whether we paralyze the entire G20; I don’t advocate that. In my opinion, G20 is too important, also for the developing countries, the emerging countries, that we should let this body be broken by Putin.”

Meanwhile, equities struggled for direction amid mixed economic data and relatively thin trading volumes while the US dollar marched higher due to hawkish narratives that were ushered into markets again by Fed speakers.

A slew of Fed speakers keeps the doves grounded and dollar bears in hibernation

At the beginning of the North American day, San Francisco Federal Reserve Bank President Mary Daly crossed the wires and said in an interview with CNN it was way too early to declare victory on inflation and that said either a 50 basis point or a 75 basis points hike would be appropriate.

This was pushing back against the market's interpretation of the minutes for only a 50bp hike where the futures markets were pricing in a 60% chance thereof. Her comments ignited the bullish tinder under the US dollar that was rising 0.12% on the day at 106.78 which has since gone parabolic to print a 107.687 in Tokyo's opening hour.

USD/JPY has rallied to fresh highs on parabolic US dollar rally

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USD/CNY fix: 6.8065 vs. est 6.8097