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During the North American session, the USD/JPY nose-dives as the Ukraine – Russia conflict escalates, on reports that Russia would attack Ukraine in the following week. The USD/JPY pair is now trading at 115.19.
On the news headlines, the USD/JPY collapsed from 115.80 towards a daily low at 115.00, where the move stalled, followed by a bounce of 20-pips, stabilizing around 115.15.
At the same time, the US Dollar Index advances almost half percent, sitting at 95.95, while US Treasuries retreat from Thursday’s highs amid a safe-haven bid.
According to a PBS NewsHour reporter, “the US believes that Russian President Vladimir Putin has decided to invade Ukraine and already communicated those plans to the Russian military. Two Biden administration officials said they expect the invasion to begin as soon as next week.”
The reporter continued “that US defense officials anticipate a “horrific, bloody campaign” that begins with two days of bombardment and electronic warfare, followed by an invasion, with the possible goal of regime change. Reportedly, the North Atlantic Council was briefed on the new intel today.”
The US National Security Advisor Jake Sullivan said on Friday that “we are in the window where a Russian invasion of Ukraine could begin at any time and could happen during the Beijing winter Olympics.”
“The US continues to see signs of escalation at the border,” he said, stressing that “the US is ready to respond decisively should Russia invade.” Sullivan added, “the response would include sanctions and changes to NATO force posture and, as a result, Russia’s power would be diminished, not enhanced, by an invasion.” Sullivan urged all Americans to leave within the next 24-48 hours.
The USD/JPY barely falls during the North American session, following Thursday’s volatile trading day, which witnessed the US economy printing a 7.5% inflation rate, the largest since 1982. As a result, US Treasury yields led by the 10-year note, pushed above the 2% mark, while the greenback seesawed, with the US Dollar Index, rising towards 96.00, falling to daily lows at 95.40s, to finally finish 0.25% up near 95.79. At the time of writing, the USD/JPY is trading at 115.88, down 0.14%.
On Thursday, St. Louis Federal Reserve President James Bullard crossed the wires. He said that he favors 1% of rate increases to the Federal Funds Rate (FFR) by July 1st. When asked about a 50 bps increase in the March meeting, he said he does not want to “prejudge that meeting.”
The Bank of Japan (BoJ) announced that it would purchase an unlimited amount of 10-year Japanese Government Bunds (JGBs) on February 14th, at 0.25%, to keep control of the Yield curve.
Sources cited by Reuters said that “By announcing its plan days in advance, the BOJ sought to discourage players from testing the 0.25% line and pre-empt any breach of that level – without actually having to purchase JGBs.”
The US 10-year Treasury yield reclaims the 2.03% threshold, almost flat a tailwind for the USD/JPY, which trimmed its 0.11% losses, down to 0.08%.
An absent Japan economic docket left USD/JPY players adrift to US macroeconomic data. On the US front, the University of Michigan Consumer Sentiment Index fell to 61.7, the lowest level since October 2011. Regarding inflation expectations for 1-year, rose to 5%, from 4.9% in January.
The USD/JPY maintains the bullish bias in place. The upbreak of a one-month-old trendline accelerated the move towards 116.00, which was broken on Thursday, would be the first support level, as USD bulls prepare an attack towards the YTD high at 116.35.
The USD/JPY pair’s first resistance would be 116.0. Breach of the latter would expose the YTD high at 116.35, followed by a challenge of a 24-month-old downslope trendline around 117.00. A clear break of that ceiling level would pave the way towards January 2017 swing high at 118.61.
