USD/JPY pokes 114.00 hurdle as Evergrande news improves mood amid steady yields

• USD/JPY refreshes weekly top during two-day rebound, grinds higher of late.
• Evergrande avoids another default, US bank holidays limit moves of Treasury yields.
• Fed rate hike, phase 1 fears remain on the table.
• Fewer data/events keep risk catalysts on the driver’s seat.

USD/JPY extend US inflation-led gains towards renewing the one-week top around 114.10 during early Thursday.

The risk barometer previously cheered a jump in the US Treasury yields to portray the biggest daily jump in a month. However, an off in the US banks limit the market moves afterward. Even so, sentiment-positive headlines from China allowed the quote to stay firmer.

The US Consumer Price Index (CPI) jumped to a three-decade high of 6.2% YoY and bolstered Fed rate hike expectations the previous day. The monetary policy views propelled the US Treasury yields to mark the heaviest rise in seven weeks, as well as fuelled the US Dollar Index (DXY).

Recently, news that China’s Evergrande made interest payment to the tune of $148 million on Wednesday, avoiding a default third time in the line, seems to have underpinned the mild risk-on mood amid the quiet markets. Mixed comments from the Fed policymakers could also be held responsible for the latest USD/JPY moves.

Patrick Timothy Harker and Mary C Daly, respective Presidents of the Federal Reserve Bank of Philadelphia and San Fransisco, tried to defend the Fed doves. Mr. Harker highlighted the possibilities of a rate hike even while tapering is on whereas Fed’s Daly said, per Reuters, that it would be premature to change the calculation on raising rates.

It should be noted, however, that not-so-positive comments from US Trade Representative (USTR) Katherine Tai citing weakness in China’s phase 1 performance test the optimists ahead of next week’s virtual summit of US President Joe Biden and his Chinese counterpart Xi Jinping.

Against this backdrop, S&P 500 Futures print mild gains and the Asian stocks are mixed as well. However, the inactivity in the bond markets disappoints momentum traders.

Moving on, the US bank holiday will join the off in Canada to restrict USD/JPY moves but news concerning Evergrande, China and rate hike may entertain the traders.

Technical analysis

A three-week-old resistance near 114.20 restricts short-term upside moves but a clear break of the 20-DMA, around 113.85 at the latest, keeps buyers hopeful.