USD/JPY catches a bid on Powell´s optimism and upbeat US consumer confidence

• USD soared as Powell looks very optimistic in his Q&A session in the US Congress.
• USD is also being supported by an upbeat US consumer confidence figure.

USD/JPY is now trading around 107.50, up  by 0.52% in the New York session after the new Fed chair sounded more optimistic about inflation in his testimonial Q&A session than the initial prepared statement. In his Q&A session in the US Congress, Powell said that he sees some “high prices” (inflation) and he has strengthened his outlook for the economy since December’17.

On Tuesday, Powell was asked about the path of rates and the Fed dot plot that shows 3 hikes this year. He declined to say what will happen to rates or forecasts but outlined several reasons why the economy had improved since December’17 and there are no reasons for skepticism.

US Treasury yields rise to day's highs, 10Y at 2.89%, and 2Y at 2.25% after Powell said confidence on inflation is getting stronger. The bond yield curve flattened as shorter-term rates rise. All of these, especially the surge in the 2Y bond yield may be indicating that the Fed is at least thinking about 4 rate hikes for this year to bring te US rate at around 2.50%.

The USD also got a boost after new Fed chair Powell said that “market volatility won’t stop more rate hikes” in his first testimonial statement. 

At the same time of Powell’s testimonial text release, a deluge of US economic data was also released which were mostly subdued and below market expectations (Core durable goods orders, wholesale inventories, trade balance).

But later the USD got a boost on upbeat US consumer confidence, Richmond Manufacturing index and overall optimistic bytes from Powell in his Q&A testimonial session with US Congress.

Earlier on Tuesday EU session, USD surged from the Asian session low of 106.77 on a report that the Fed could modify its core inflation target to 2.5% from the statutory mandate of 2% at present. There was also a report that the BOJ may refrained from changing its YCC modification (back door tapering) until late 2019 when Japan is supposed to hike its sales tax.

On Tuesday, USDJPY made an Asian session low of 106.77 on Japanese economic optimism and an uptick in BOJ+s core inflation. Japanese economy minister said he “expects consumer spending to continue to rise but will monitor impact from rising consumer prices”.

Thus the JP economy minister is quite optimistic about JP consumer spending and rising inflation. At the same time BOJ core inflation came higher at 0.8% vs estimate 0.6%; prior: 0.7% (Y/Y), which may be also in line with Kuroda’s observation.

Technically, USDJPY now has to sustain above the 107.75 price zone for a further rally towards 108.05-108.30 and further sustaining above 108.30, it may race towards the 108.75-109.20 zone; otherwise, USDJPY may again fall towards 106.75/106.00-105.40 and the 105.05-104.40 prce zone in the coming days, if it sustained below 107.25 zone.