The USD continues to grind higher supported by the recent pick-up in long-term US yields. The release of latest FOMC minutes is the main event risk for the week ahead with the USD/JPY pair set to test July’s high of 111.66, as reported by MUFG Bank.
See – USD/JPY: 108.72 and 108.20 are key technical supports to look out for – DBS Bank
USD/JPY remains the most strongly correlated to long-term US rates
“The release in the week ahead of the latest FOMC minutes (Wed) from the July policy meeting could provide further insight into the Fed’s plans. Over the past year, the trend has been for the USD to strengthen initially following the release of FOMC minutes but only modestly. As the Fed moves closer to a policy pivot, there is a risk of a bigger market reaction.”
“Our correlation analysis continues to show that USD/JPY has had the strongest correlation to long-term US rates at +0.66. At the same time, our short-term valuation model estimate based on yield spreads is signalling that USD/JPY has not fully tracked the recent move higher in US rates.”
“We continue to see risks as tilted to the upside for the USD in the week ahead. Any hawkish policy signal in the FOMC minutes could reinforce the USD’s upward momentum especially if key resistance levels are taken out. USD/JPY is poised to rise back towards and test July’s high at 111.66.”