After U.S.-China and Middle East risks ease, will USD/JPY push above 110? “Key points on January 14 and event schedule”

If USD/JPY breaks through 109.70 in European time yesterday, it rapidly rises toward around 109.90.

Thereafter, while repeatedly testing the 110 level, it has been inching higher to 109.94.

Since 110 is observed in options as well, the resistance is quite strong, but once broken, it feels like it could rise sharply.

Also, yesterday a BoE external member of the MPC, Brihah, spoke about rate cuts, causing the pound to fall.

In the past few days, statements hinting at rate cuts by MPC members have increased the likelihood of a cut at the next “Super Thursday.”

◎ Today’s Points of Focus

1) U.S.–China Relations

There are reports from some sources that they are considering removing China from the list of currency manipulators.

If a country is labeled a currency manipulator, sanctions are imposed; in the case of China, tariffs are already in place, so being removed from the currency manipulator list may not have a large actual impact, but could have a psychological effect and provide a tailwind for risk-on sentiment.

With the U.S.–China talks set to sign an agreement tomorrow, today too, headlines related to U.S.–China relations warrant attention.

2) Middle East Risk

Following yesterday, protests against the leadership appear to be expanding in Iran.

There are also reports of shelling at U.S. military bases in Iraq, suggesting Iran may not have full control domestically.

Iran says it will advance uranium enrichment beyond the limits of the nuclear agreement after the United States unilaterally withdrew from the accord.

The leaders of the U.K., France, and Germany have issued statements urging Iran to comply with the nuclear deal.

If Iran does not comply and withdraws from the agreement, Israel and Saudi Arabia, among others, may also exit and pursue nuclear development, potentially triggering a nuclear arms race.

That could lead to increased Middle East instability, so attention is needed on the nuclear deal and uranium enrichment.

3) U.S. Indicators and USD/JPY at 110

Having broken the long-standing 109.70 resistance, it is now in a battle around 110.

There are also options observed at 110, and if breached, stop-loss orders could be drawn in, pushing the rate higher.

Additionally, today the CPI (Consumer Price Index), which has significant influence on U.S. monetary policy, will be released.

If Tokyo and European markets have not clearly broken through 110, attention is likely to turn to U.S. data releases.

◎ Today’s Economic Calendar

January 14 (Tuesday)

12:00　CNY　China Trade Balance

17:30　EUR　Ewald Mesqu ECB Executive Board member comments

22:30　USD U.S. CPI (Consumer Price Index)

23:00　USD　Williams, President of the Federal Reserve Bank of New York, speaks

January 15 (Wednesday)

02:00　EUR　Bilroa, President of the Bank of France, speaks

03:00　USD　George, President of the Federal Reserve Bank of Kansas City, speaks

04:30　EUR　Decos, President of the Bank of Spain, speaks

09:30　JPY　Kuroda, Governor of the Bank of Japan, speaks