Summary Japan's economy has been reasonably resilient so far in 2022. Growth has been moderate, although confidence surveys suggest mixed prospects for different economic sectors, consistent with only moderate growth ahead. We also expect relatively contained inflation going forward as well. While prices are elevated compared to recent history, inflation remains low by international standards. As for the currency, historically there have been two important drivers for movements in the yen: the currency's safe haven characteristcs and Japan's yield differentials with the rest of the world. In more recent times the yen's safe haven properties seem to have diminished to some extent, whereas yield differentials have remained a better indicator of potential trends in the yen. Given that yield spreads appear to be the more influential driver, trends in global monetary policy, especially those of the Federal Reserve, should be influential for the yen. The increasing divergence in monetary policy between a hawkish Federal Reserve and dovish Bank of Japan means we believe the yen still has room to weaken against the U.S. dollar in the medium term, even if the Ministry of Finance intervenes in FX markets again to support the currency. We believe that as yields continue to diverge, the yen can weaken toward a USD/JPY exchange rate of JPY149.00 by Q1-2023, before recovering somewhat as next year progresses. Read the full report here

Outlook: Pivot talk is officially dead. Formerly dovish Minneapolis Fed Kashkari said the Fed is "quite a ways away" from pausing its rate-hike cycle. Chicago’s Evans said the rate will probably reach 4.5-4.75% by next spring. New member Cook said more hikes are needed to tame “stubbornly high inflation.” We get three more today (Williams, Kashkari and Bostic). Separately, the IMF meets next week and is sure to offer more unsolicited and unwelcome advice. The dollar is again too strong, running above 145 against the yen for the first time since 1998. This is a function of US yields rising again while Japan holds the line artificially. Everybody has rising yields. See the chart. The Swiss 10-year is over 1.3% for the first time in 11 years. Payrolls today will be the usual misery for traders. The Bloomberg version is a gain of 255,000 jobs (Reuters has 250,000), and that’s with the government shedding, so all private sector. As usual, the FX market will react to the actual vs. the expected, and if it’s a big gain, like 350,000, it’s conceivable the 100-point hike can come back again, although you’d think the traders would have learned their lesson by now. If it’s a far smaller number, like 100,000, traders will pare back rate expectations to (say) 50 bp and exit fat dollar long positions. The problem with trading the news and especially this news is that crazy people and algos will exaggerate the moves and ram prices right through your stops and targets. It’s a fool’s game. While today’s data may not be meaningful, actually meaningful numbers are lining up behind the curtain. See the chart from Bloomberg and eminently sane commentary: ”…. multiple leading indicators show us that the cycle is peaking and the jobs market will soon start to slow, although we are unlikely to see this clearly in the data for a few months yet. “Until then, the Fed is laser-focused on inflation. And while an unexpectedly very weak set of employment data would prompt the market to increase the size (and perhaps move back the start of) the Fed pivot, a single, notoriously noisy data point will not be enough for the Fed to be confident the inflation wind has changed. Payrolls are likely to be hotly anticipated for many more months to come.” Today is as slow as molasses until payrolls comes out, and even after that bomb, there is little else going on except chit-chat about Elon Musk and what to wear in the Columbus Day parade next Monday. Monday is a national holiday in the US and government offices are closed, but not every bank shuts down and we usually get some trading. FX will be slow and thin because the US bond market is closed, but the stock market will be open. Go figure. The CBOE is open but the CME floor is closed for FX–but Globex is open, so we while we don’t get an official open and close until the next day, we still get some action. It’s very messy. We will publish all reports as usual but not happily because the prices will be sub-par. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

US job growth has remained robust in September – 263K jobs gained.  The Federal Reserve is likely to ramp up its hawkish rhetoric, raising the chances of fast hikes.  Stock advances will likely remain "bear market rallies," and the dollar's reign is set to continue. Winter is not coming – at least not to America's labor market, which remains strong, posting another impressive increase in jobs last month. An increase of 263K is just above 250K seen on the economic calendar and just under the "whisper number" which was around 280K. Leading indicators came out above expectations.  That contrasts with Fed Chair Jerome Powell's "pain" talk – to see inflation falling, the economy needs to suffer.  To put this NFP in proportion, I want to note that the US economy gained some 200,000 jobs before the pandemic, and that was considered healthy, steady growth. The economy is doing better.  A negative jobs figure is unnecessary to see the Fed "pivot" from rapid rate rises. Dollar bears and stock bulls only need an NFP of under 100K to reach the "beginning of the end" of Fed tightening – slower rate hikes. Data for September suggest that a fourth consecutive 75 bps hike is cemented. What about December? Markets foresee a 50 bps hike, and the chances of that softening to 25 bps have dropped. The focus will soon shift to next week's all-important Consumer Price Index (CPI) report. Seeing peak inflation in the rearview mirror is critical for reaching peak Fed hawkishness and a market turnaround. Yet after Powell's "pain" comments in Jackson Hole, current robust job gains suggest that one weak inflation report is insufficient for a Fed pivot – nor a market one.  Inflation slowed in July only to lift its ugly head in August. The labor market looks pretty – too pretty to provide calm for stock investors or dollar bears. 

An electrifying week is coming up, featuring another crucial US inflation report and minutes of the latest Fed meeting. Both will be key pieces of the puzzle for the dollar and risk assets, as traders grapple with whether the Fed will pause its tightening cycle anytime soon. Even in case of a softer inflation print though, this type of speculation seems premature. 

EUR/USD - 0.9790 Euro's selloff yesterday from 0.9926 (Asia) and then break of Wednesday's 0.9835 low (now resistance) to 0.9789 in New York on renewed USD's strength signals decline from Tuesday's near 2-week 0.9999 high to retrace rise from September's 2-decade 0.9537 trough would head towards 0.9713 but 0.9636 should hold. On the upside, only a daily close above 0.9835 would risk stronger gain to 0.9885/95 before down. Data to be released on Friday Japan all household spending, coincident index, leading index, China market holiday. Swiss unemployment rate, Germany import prices, industrial output, retail sales, U.K. Halifax house prices, France current account, trade balance, imports, exports, Italy retail sales. U.S. non-farm payrolls, private payrolls, unemployment rate, average earnings, wholesale inventories, wholesale sales, Canada employment change and unemployment rate.

EUR/USD met with a fresh supply on Wednesday amid resurgent USD demand. Hawkish Fed expectations, rising US bond yields and risk-off lift the greenback. Geopolitical risk weighs on the euro and contributes to the sharp overnight fall. The EUR/USD pair faced rejection near the parity mark and came under renewed selling pressure on Wednesday, reversing a significant part of the previous day's positive move to a two-week high. The US dollar made a solid comeback and stalled its recent sharp pullback from a two-decade high, which, in turn, was seen as a critical factor exerting downward pressure on the major. Fed officials reiterated the US central bank's commitment to controlling inflation and reaffirmed expectations for a more aggressive policy tightening. The markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This, in turn, pushed the US Treasury bond yields higher and acted as a tailwind for the buck. Furthermore, worries that rapidly rising borrowing costs will lead to a deeper global economic downturn continue to weigh on investors' sentiment. This led to a fresh leg down in the equity markets and was seen as another factor underpinning the safe-haven greenback. On the economic data front, the US ISM Services PMI came in slightly better than estimates and edged to 56.7 in September from 56.9 previous. From the Eurozone, the Services PMI was revised for September and the composite index was finalized at a 20-month low. This comes amid the risk of a further escalation in the Russia-Ukraine conflict, which weighed on the shared currency and further contributed to the EUR/USD pair's overnight steep decline of over 150 pips.   However, spot prices showed some resilience below the mid-0.9800s and rebounded a few pips from the daily low. The recovery momentum extends through the Asian session on Thursday and lifts the EUR/USD pair back above the 0.9900 round-figure mark. Market participants now look forward to the release of the ECB Monetary Policy Meeting Accounts for a fresh impetus. Later during the North American session, traders will take cues from the US Weekly Initial Jobless Claims data and speeches by FOMC members. The focus, however, remains on the closely-watched US employment details on Friday. The popularly known NFP report will influence Fed rate hike expectations, which will drive the USD demand and help determine the near-term trajectory for the major. Technical Outlook From a technical perspective, the EUR/USD pair stalls its recent recovery move from its lowest level since June 2002 near the parity mark. The said handle now coincides with the 50-day SMA and should now act as a pivotal point. A multi-month-old descending trend-line hurdle follows this, currently around the 1.0050 region, which if cleared decisively will suggest that spot prices have formed a bottom and pave the way for additional gains. The subsequent move-up should allow bulls to aim to reclaim the 1.0100 round figure and test the next relevant hurdle near the 1.0120 horizontal zone. On the flip side, sustained weakness below the 0.9900 mark could drag the EUR/USD pair back towards the 0.9860-0.9850 region. Some follow-through selling below the overnight swing low, around the 0.9835 area, will be seen as a fresh trigger for bearish traders and prompt aggressive technical selling. Spot prices might then turn vulnerable to weaken further below the 0.9800 round-figure mark and accelerate the drop towards the 0.9750-0.9745 support zone.