Dollar rebound vs yen stuck under November low pre-CPI and Fed

Dec 6 (Reuters) – USD/JPY fell modestly Tuesday after its 137.42 intraday rebound high from Friday’s 133.62 trend low faltered in front of November’s 137.50 low and the 61.8% Fibo of last week’s dive fueled by Fed Chair Jerome Powell, and a deepening slide remains on the cards.

Friday’s decent jobs data and Monday’s ISM non-manufacturing beat lifted the expected Fed rates ceiling back to near 5% and 2-year Treasury yields about 13bp off last week’s lows, but it would take a sharply hawkish Fed guidance course correction to bring hike expectations back to their pandemic recovery peaks.

Even though USD/JPY is highly positively correlated with 2-year Treasury yields, USD/JPY and rates slid after the fourth consecutive 75bp Fed hike because of the bearish feedback loop aggressive tightening induced.

New multi-decade 2-10-year Treasury yield curve inversion depths Tuesday and rate cuts yet priced in for H2 2023 highlight this USD/JPY bearish feedback loop.

The Dec. 13-14 CPI and Fed meeting might provide a better level to join the pandemic recovery’s reversal. Above resistance by 137.50, hurdles are at 138.40 and by 139 and 140, with 132.55/46 downside targets.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)