Yen extends gains

The yen is in positive territory for a second straight day. In the North American session, USD/JPY is trading at 138.60, down 0.23%. Earlier, in the day the yen pushed below the 138 line but was unable to consolidate.

The widespread protests in China over the country’s zero-Covid policy has unnerved investors, as the unrest is expected to worsen supply chain disruptions and chill domestic spending. The Chinese government has cracked down on the protests, and won’t be easing up on its covid policy until the number of cases drops sharply. The protests have dampened risk appetite and the Japanese yen, a traditional safe-haven, has posted modest gains.

The Federal Reserve continues to telegraph a hawkish message to the markets, with the Fed’s meeting two weeks away. Fed member Bullard said on Monday that the markets are underestimating the Fed, adding that the terminal rate could be in the range of 5%-7%. The markets aren’t buying into that forecast, as they have priced the terminal rate at about 5%. The Fed has been signalling that it will raise rates at the December meeting by 50 basis points, but the markets aren’t entirely convinced. The likelihood of a 50-bp move has fallen to 67%, with a 33% chance of a 75-bp move. Just two weeks ago, the ratio was 80-20 in favour of a 50-bp hike. The markets are hunting for clues about the Fed’s plans, and will be listening carefully to Jerome Powell, who is expected to touch on inflation in a speech on Wednesday.

Japan’s retail sales for October slowed to 4.3%, down from an upwardly revised 4.8%. This missed the consensus of 5.0%, but retail sales have now recorded gains since March, when Japan began easing border restrictions as Covid cases subsided.

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USD/JPY Technical

• There is resistance at 139.82 and 141.58
• USD/JPY is testing support at 138.62. Below, there is support at 137.39

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