Bulls are aiming for Monday's highs as the USD/JPY range in Tokyo widens

The USD/JPY pair was under pressure to start the Tokyo session, swinging between highs and lows. The pair has emerged as a potential target for intervention by the Bank of Japan when Japan returns from a holiday, which might increase the volatility at the start of the trading day. The USD/JPY exchange rate is currently trading close to the Tokyo open high of 145.74 and has fallen to a session low of 145.54.

The MSCI global index has declined, while the US dollar has somewhat strengthened and US interest rates have increased, indicating a choppy start to the week on the stock markets. The start of the corporate results season and US figures are causing investors anxiety. Interest rates and more signs of an economic downturn in Chinese Services data reported over the weekend have contributed to market volatility this week, just before the start of the third-quarter earnings season on Friday. Given yield differentials, key variables that will probably impact US rates and the value of USD/JPY include US Retail Sales, the US Consumer Price Index, and the minutes from the Federal Reserve.

Having already broken the highs of the previous week, the yield on the 10-year US Treasury note rose to a high of 3.992% on Monday. This may have been a last-ditch attempt to surpass the psychological 4.00% barrier. The next goal is the 4.019% peak from the previous month. The DXY index, which rates the value of the dollar against a basket of other currencies, increased from a low of 112.621 to a high of 113.333. Tokay, however, is perched precariously above both Friday's and the previous week's highs.

Notably, following a string of hawkish Fed remarks, speculators' net long USD index positions gained momentum for the second straight week. However, net longs were below previous levels, suggesting that the dollar could continue to rise.

Regarding the Fed speakers on Monday, Fed Vice Chair Lael Brainard said that although the full impact of interest rate hikes won't be apparent for several months, tighter US monetary policy has started to be felt in an economy that may be slowing more swiftly than expected. Charles Evans, a Fed official, reportedly told Reuters that the Fed must "carefully and responsibly" move toward a "reasonably restrictive" policy rate.

The probability of a 75-basis-point increase at the following Fed meeting is now priced into futures contracts for Fed funds at 92%. The potential cost of owning bullion with no yield rises as interest rates rise.

The September dot plot indicated a higher-than-expected Fed Funds terminal rate of 4.625% with a fairly even dot dispersion around this level, according to TD Securities analysts. The question is to what extent these were discussed at the September meeting. These conversations were probably more hawkish than the current dovish pivot markets narrative, given the trends in core CPI inflation.

The second finding related to CPI was that "core prices presumably remained stable in September, with the series reporting a 0.5% MoM increase," according to academics. Even though we predict a sharp drop in used car prices, housing inflation is likely to have stayed high. Notably, the decline of about 5% month-over-month in gas prices certainly gave the headline figure some extra relief. For total/core goods, our MoM projections indicate price growth of 8.2%/6.6% YoY.