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USDJPY jumps to cycle highs

The USD has been trending higher recently as the Fed's next steps are being judged by investors.

The USD/JPY pair paused in its rally on Tuesday and was seen consolidating above the 137 level, close to its cycle highs reached earlier in the summer.

BoJ stays dovish, no matter what

Even though consumer inflation will continue to rise for another six months, Bank of Japan (BoJ) officials will maintain their current course of action, former BoJ Chief Economist Kazuo Momma stated in an interview with MNI on Monday.

According to Momma, the Core CPI this fiscal year, on average, is expected to rise above the BoJ’s median forecast of +2.3%. Moreover, the BoJ will not be able to end its easy policy strategy until inflation stabilizes at around 2% for at least two years.

“Unless the US economy falls into recession, it will not be able to show a path pointing to inflation falling to appropriate levels,” he concluded.

Later today, the July New Home Sales report and the Richmond Fed Manufacturing Index will be included on today’s US economic calendar. Moreover, US PMIs are on the agenda as well.

The US dollar has been strengthening recently, pushing the EURUSD pair below parity to fresh 20-year lows at 0.99, while USDJPY soared above 137 again.

You can also read: Weekly macro report – European risks and opportunities

Jackson Hole symposium nears

Investors are becoming more worried about a worldwide recession. In response to Fed members’ statements last week, they may be preparing for hawkish remarks at the Jackson Hole Symposium later this week.

The key risk event and probable market mover is Friday’s speech by Federal Reserve Chair Jerome Powell, on which all eyes will be focused. In the following weeks, the direction of the world markets may be determined by what Powell says in his speech or decides to withhold.

The August preliminary readings of Japan’s Jibun Bank Manufacturing PMI decreased to 51.0 from 52.1 in July, and 51.8 predicted. In addition, the Jibun Bank Services PMI had a similar dip, falling from 50.3 in prior readings and 50.7 market consensus to 49.2.

Meanwhile. the US 10-year Treasury rates have fallen from their monthly high of 3.04%, falling by over two basis points (bps) to 3.02% as of publication.

The key resistance could be in the 139 area, where the cycle highs are. A further rally above 140 might occur very quickly if broken to the upside. On the downside, the short-term support seems near 136.60.

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