The Japanese Yen (JPY) remained stable on Monday, hovering near its lowest level of 161.28 since 1986. Positive business confidence data from Japan lifted market sentiment, hinting at potential appreciation for the Yen. Speculations about possible intervention by Japanese authorities further supported the JPY and curbed the upside of the USD/JPY pair.
Japan’s Tankan Large Manufacturing Index saw a rise to 13 in the second quarter, up from 11, marking its highest level in two years amid an improving economic outlook. However, the Jibun Bank Manufacturing PMI for June was slightly revised down to 50 from a preliminary reading of 50.1, but it remained in expansionary territory for the second consecutive month.
Conversely, the US Dollar (USD) weakened due to recent inflation data, raising expectations of a potential interest rate cut by the US Federal Reserve (Fed) in 2024. The CME FedWatch Tool indicated a 32.0% likelihood of a 25 basis points rate cut in December, an increase from 28.7% the previous week.
Daily Digest Market Movers:
Japanese Business Confidence: The Tankan Large Manufacturing Outlook increased to 14 in Q2 from 10. Additionally, Large All Industry Capex surged to 11.1% from the previous 4.0% reading.
US Inflation and Fed Expectations: The Federal Reserve Bank of San Francisco President Mary Daly stated that while monetary policy is working, it is premature to decide on interest rate cuts. She emphasized that if inflation remains high, rates may need to stay elevated longer.
US Inflation Data: The US Bureau of Economic Analysis reported that the US inflation rate fell to its lowest in over three years, with the Personal Consumption Expenditures (PCE) Price Index increasing by 2.6% year-over-year in May, down from 2.7% in April. Core PCE inflation also dropped to 2.6% from 2.8%.
Japanese Economic Concerns: Japanese Finance Minister Shunichi Suzuki expressed deep concerns about the impact of rapid foreign exchange movements on the economy, stating that excessive volatility is undesirable and that appropriate measures will be taken.
Tokyo CPI Inflation: Consumer Price Index (CPI) inflation in Tokyo rose to 2.3% year-over-year in June, up from 2.2%. Core Tokyo CPI inflation also increased to 2.1% from 1.9%, surpassing market expectations.
Technical Analysis: USD/JPY Hovers Around 161.00
The USD/JPY pair traded around 161.00 on Monday, exhibiting a bullish bias on the daily chart as it neared the upper boundary of an ascending channel pattern. The 14-day Relative Strength Index (RSI) was positioned above 50, indicating upward momentum.
If the pair surpasses the upper boundary of the ascending channel around 161.50, it could reinforce bullish sentiment, potentially driving the USD/JPY pair towards the psychological level of 162.00.
On the downside, immediate support is seen at the nine-day Exponential Moving Average (EMA) at 159.98. A breach below this level could increase downward pressure on the USD/JPY pair, potentially pushing it towards the lower boundary of the ascending channel around 158.20. A break below this level could lead the pair to test June’s low at 154.55.
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