USD/JPY: Calm before the storm?

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USD/JPY trades near flat on the day at 112.23


USD/JPY is barely moving today after the drop seen in overnight trading. This comes despite the rout seen in the Nikkei and Asian equities as well as the ongoing risk off sentiment in European equities.
For a moment there, it looked like risk is set to improve with E-minis having earlier almost erased all of its losses in early European trading. But it was a bit too good to be true as price now falls back and is heading towards the lows for the day again.

But perhaps the story of the lack of movement in USD/JPY is one more simpler and is tied to the fact that US yields are barely changed on the day as well. This comes as markets are waiting in eager anticipation of the US CPI report later at 1230 GMT.
As for the technical story, the timing of the equities selloff recently couldn’t have come at a more appropriate time for sellers as it coincided with the pair touching the key resistance level at 114.50. That has previously stalled upside in the pair on three occasions in 2017 and it’s one that has stalled the decline this time around as well.
Meanwhile, downside now appears to be limited by the 112.00 figure handle for the time being. We’re very much in a wait-and-see mode right now as the storm (US CPI report) is set to hit and depending on the severity of the «damage», markets will react accordingly in the next step.
Something to note in the latest selloff here in global equities is that it may be more isolated than one might think. Emerging market currencies are holding up well so far this session as the Turkish lira and South African rand leads gains, while European bond markets do look a whole lot tamer following the earlier action. Treasuries are also relatively subdued to say the least despite the risk aversion seen in most other asset classes.
But given the situation and volatility in markets right now, that can easily all change with one headline. Certainly feels like the calm before the storm right now.



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