The dollar fell in yesterday's trading, but the decline has not expanded so far today. Dollar pairs other than USD/JPY are relatively stable after slightly expanding their ranges earlier. The current situation is as follows.
GBP/USD rose to a high of 1.3340 on the back of positive UK retail sales data but has now pared gains to 1.3285.
Meanwhile, other dollar pairs remain stuck in tight ranges and generally show a lack of enthusiasm. EUR/USD remains subdued, at least for now, with some large options expiry looming.
USD/JPY is the main mover with a view to breaking above the 144.00 level next, but overall the pair has been trapped in a series of lower highs in recent times.
USD/JPY daily chart
Today's rise comes as the Bank of Japan left its monetary policy unchanged. Ueda also did not offer any concrete proposals for tightening monetary policy in October next year. As things stand, he still maintains that the market is “unstable.” BOJ policymakers have said they are reluctant to raise interest rates again as long as the market remains unstable.
In the bond market, the 2-year Treasury yield has been fluctuating a bit throughout the day, dropping to around 3.57% at one point before rising to nearly 3.60%. The 10-year Treasury yield also fell to a low of 3.70% before rising to just above 3.72%.
A bounce in USD/JPY is likely, but the scope for a significant bounce is still limited unless dollar sentiment changes.
Traders are trying to test how far they can push the Fed in terms of pricing into November, so that needs to be taken into consideration as well. Then there is the 23.6 Fib retracement level from July to the lows earlier this month at 144.85. Before that, bigger offers are lined up at the 145.00 figure level.
These will be the big levels to watch in gauging the extent of the currency pair's latest bounce.
But I would argue that it also needs to be justified by interest rate movements, so we'll see about that.
