USDJPY dwindles at around 139.00 on soft US data as geopolitical tensions arise

• The producer Price Index in the United States decelerates, flashing the impact of the Federal Reserve’s policy.
• After two US inflation reports, the US Dollar weakened on hopes that the Fed will pause rate hikes.
• Japan’s GDP contracted, justifying the Bank of Japan’s loose policy.
• Russian missiles hit Poland, though pending confirmation remained.

The USDJPY struggles to gain traction above the 100-day Exponential Moving Average (EMA) at 140.82 and drops following the release of a soft US inflation report, strengthening the case for the Federal Reserve and moderating the pace of rate hikes. Also, geopolitical tensions arose as reports emerged that two Russian missiles hit Poland. The USDJPY is trading at 139.05, below its opening price by 0.58%.

Sentiment remains fragile following the Poland events. Reports emerged that Ukrainian forces intercepted a Russian rocket, which dived into Poland, causing the tragedy. Of note, Polish authorities have not expressed an official version of what happened. At the time of typing, the White House said it couldn’t confirm the reports coming out from Poland.

Aside from this, US equities have recovered some ground after the Poland headlines. The US Department of Labor (DoL) revealed that the Producer Price Index (PPI) for October expanded 8% YoY, beneath 8.3% estimates, while excluding volatile items, the so-called core PPI jumped by 6.7% YoY, less than 7.1% foreseen. Now that CPI and the PPI reports are in the rearview mirror, suggesting that US inflation is cooling,

Elsewhere, Federal Reserve officials commented that a deceleration of tightening monetary conditions would be appropriate, but at the same time, emphasized that the work is not done. On Tuesday, Atlanta’s Fed President Raphael Bostic said that the Fed needs to be persistent. Meanwhile, the Fed Vice-Chair for Supervision, Michael Barr, cautioned that the economy could see “significant softening” following the Fed’s actions.

On the Japanese front, data revealed that Gross Domestic Product (GDP)for Q3 shrank by 1.2% against a 1.1% growth estimated by analysts, justifying the Bank of Japan’s (BoJ) monetary policy. The BoJ  Governor Haruhiki Kuroda continually expressed that the central bank would keep monetary policy conditions loose to stimulate the Japanese economy.

What to watch

Ahead in the calendar, the Japanese economic calendar will feature Machinery Orders and Tertiary Industry Index for September. In the US, the docket will feature the MBA 30-year Mortgage Rate alongside Import and Export Prices, Retail Sales, and Industrial Production. Also, Fed speakers like the New York Fed President John Williams will cross newswires.

USDJPY Key Technical Levels