Dovish Fed minutes send USD/JPY to a two-month low

Dollar/yen is trading at 111.20 after having already fallen to 111.14. These are the lowest levels since September 20th, two months to the date.

The recent drops place the pair in the middle of the wider 108.10 to 114.50 range. An attempt to break higher seen in early November sent it to 114.80, but this was a false break that triggered a cascade.

A battle line awaits at 111.30 which provided support in the past and is exactly 50% of the 108.10-114.50 range. Looking lower, we find 110.60, followed by the round number of 110. Further below, 108.80 is the last stop before 108.10.

On the upside, we find more familiar levels such as 112.20, 112.75 and 113.50, which served as resistance not so long ago.

Why is USD/JPY falling? The Fed meeting minutes were somewhat dovish, adding on to what Yellen said earlier in the day.

A few Fed official opposed a rate hike due to weak inflation. They had a “broad” debate about inflation. Those in opposition said that a rate hike should be delayed until the data proves that inflation is on track to the 2% holy grail.

The worries about inflation did not include only a “few” but “many participants”. They observed that weak inflation could be persistent and not transitory.

Here is a quote from the text:

With core inflation readings continuing to surprise on the downside, however, many participants observed that there was some likelihood that inflation might remain below 2 percent for longer than they currently expected

— more coming

This is not related to stocks, as they remain quite stable. Perhaps the absence of new record highs in the S&P is a good reason for the downfall.

Is it US politics? There is no dearth of scandals from the Trump administration, but the latest news is actually positive. Alaska Senator Lisa Murkowski said she will support the tax bill. She was one of those that opposed the health bill in the summer.

It may be related to the flattening of the yield curve in the US. The 10 year to 2 year yield.


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