Yesterday we saw some strong volatility, as markets trembled after the US consumer price inflation report was released. The decline to 6.5% for the annualized CPI inflation was in line with predictions and that’s good enough to rule out a 0.50% rate hike at the start of next month. To support that, the implied odds of 50 in the Fed funds market fell to just 8% from 25% earlier this week.

The USD Fell immediately, then spiked higher to end up lower at the end of the day, so the volatility was pretty high. The JPY was the top performer though, as it surged around 300 pips against the USD. A report in Japan indicated the Bank of Japan is more worried about financial risks around YYC and the market is now heavily speculating that it could come to an end or be materially altered at next week’s meeting.

That started the bullish move in the Yen that extended through Europe and into US trading. So, I suppose we’ll see much more volatility next week during the BOJ meeting which we have circled on our calendars.

USD/JPY Daily Chart – The 20 SMA Pushes the Price Down

Sellers have pushed this pair below 130

On the daily chart above, this pair was being supported by moving averages until late October when the BOJ made a decisive intervention. But, the 200 SMA (purple) was holding as support, although it couldn’t hold for too long. The 20 SMA (gray) pushed the price lower and the brake came after the slight pivot by the BOJ in December. The 20 SMA continues to act as resistance, pushing USD/JPY lower, so both technicals and fundamentals are pointing down for this pair.

USD/JPY Live Chart