USD/JPY stays heavy to start European morning trade

The pair is testing waters last seen back in July last year. The dip below 140.00 today is threatening to firmly take out the low from December last year on the daily chart. And from a psychological perspective, a firm break below 140.00 itself will keep sellers very much in control to start the new week.

But again, with the moves we’re seeing, it all has to be vindicated by the Fed later this week.

Market players are getting quite pushy and are now pricing in ~59% odds of a 50 bps rate cut. That’s quite a leap from the ~21% pricing right after the US CPI report on Tuesday last week. Timiraos’ piece here may have something to do with that. But it’s also best to be reminded that this is a market that has a knack for trying to bully the Fed into a decision.

Going back to USD/JPY, the action there also has a lot to do with the bond market. 10-year Treasury yields are at 3.64%, keeping around its lowest levels since June last year amid the fall since last week. Meanwhile, 2-year Treasury yields are of more interest as it threatens the 2023 low near 3.55% now:

That will keep broader markets on edge as well, with all eyes turning towards the Fed this week.

This article was written by Justin Low at www.forexlive.com.