The Japanese Yen (JPY) has continued its upward trajectory for the second consecutive session on Tuesday, buoyed by a prevailing risk-on sentiment. This surge can be attributed to mounting expectations of interest rate cuts by the Federal Reserve (Fed) in 2024. The sentiment is further bolstered by an unexpected decline in the ISM Manufacturing Purchasing Managers’ Index (PMI). However, the interest rate gap between the US and Japan continues to exert pressure on the Yen, albeit tempering the downside of the USD/JPY pair.
Bank of Japan (BoJ) Governor Kazuo Ueda affirmed on Tuesday the central bank‘s commitment to agile market interventions should long-term interest rates experience volatility, indicating preparedness to escalate bond purchases as necessary. Ueda also outlined the BoJ’s readiness to adjust monetary support levels should underlying inflation accelerate in line with projections, according to Reuters.
The US Dollar Index (DXY), measuring the USD against six major currencies, has seen a marginal uptick, attributed to improved US Treasury yields. This rise correlates with a prevalent risk-averse sentiment ahead of the release of Wednesday’s ADP Employment Change and ISM Services PMI data. Despite anticipations that the Fed may refrain from further interest rate hikes, potentially dampening US Treasury yields, this could weigh on the Greenback.
In the realm of market developments, Reuters reported on Tuesday that Japan’s government is poised to highlight the adverse implications of a weak Yen on households in its long-term economic policy roadmap for this year. This focus on the Yen’s impact is anticipated to sustain pressure on the Bank of Japan to either raise interest rates or curtail its extensive bond-buying initiatives.
Key economic indicators also play a significant role in shaping market sentiment. The ISM Manufacturing PMI unexpectedly contracted to 48.7 in May, down from April’s 49.2 and falling below the forecast of 49.6. This marks the US manufacturing sector’s second consecutive month of contraction, representing the 18th occurrence in the last 19 months.
Technical analysis of the USD/JPY pair reveals its trade around 156.40 on Tuesday. Analysis of the daily chart indicates a symmetrical triangle pattern, signaling a consolidation phase. However, with the 14-day Relative Strength Index (RSI) slightly above the 50 level, a potential decline may indicate a shift towards a bearish bias.
In terms of potential price movements, a breach above the psychological barrier of 157.00 and surpassing the upper boundary of the symmetrical triangle could prompt a retest of 160.32, its highest level in over three decades. Conversely, a breach below the lower boundary of the symmetrical triangle may exert downward pressure, with the pair approaching the psychological level of 156.00 and potentially testing the 50-day Exponential Moving Average (EMA) at 154.69.
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