The Japanese Yen (JPY) ended its two-day winning streak on Monday as the USD/JPY pair rebounded, driven by a stronger US Dollar (USD) due to a risk-off sentiment in the market.
In its latest ‘Sakura Report’, the Bank of Japan (BOJ) maintained its economic assessment for five of Japan’s nine regions. The assessment was raised for two regions and lowered for another two. The BOJ also noted that wage hikes are spreading among smaller firms across many regions.
The US Dollar faces potential struggles due to the dovish sentiment surrounding the Federal Reserve (Fed) following weaker-than-expected US employment growth data released on Friday. Despite Nonfarm Payrolls (NFP) surpassing market expectations in June, the growth pace slowed compared to May, and the unemployment rate increased. These factors have led traders to speculate that the Fed might initiate interest rate cuts sooner than anticipated.
According to the CME’s FedWatch Tool, the probability of a rate cut in September has risen to 70.7%, up from 64.1% a week earlier.
Daily Digest Market Movers:
Japanese Yen: Improved slightly due to dovish Fed sentiment.
Japan’s Current Account Surplus: Grew for the 15th consecutive month in May, reaching ¥2,849.9 billion ($17.78 billion), surpassing market expectations of ¥2,450.0 billion.
Labor Cash Earnings in Japan: Rose by 1.9% year-on-year in May, the highest level since January, though below the expected 2.1% increase.
US Nonfarm Payrolls: Increased by 206,000 in June, exceeding the expected 190,000 but less than the previous month’s 218,000.
US Unemployment Rate: Edged up to 4.1% in June from 4.0% in May.
US Average Hourly Earnings: Decreased to 3.9% year-over-year in June, aligning with market expectations.
Strategist Insights:
OCBC strategists Frances Cheung and Christopher Wong noted the persistent strength of USD/JPY, raising intervention expectations. They speculate that authorities might allow further depreciation before intervening.
Federal Reserve Bank of Chicago President Austan Goolsbee stated that bringing inflation back to 2% will take time and more economic data is needed. Meanwhile, Fed Chair Jerome Powell indicated that the central bank is returning to a disinflationary path.
Minutes from the Fed’s June 11-12 monetary policy meeting revealed a wait-and-see approach, with decisions being data-dependent rather than preset.
Rabobank FX strategists highlighted the importance of yield differentials for the USD/JPY outlook, suggesting that FX intervention could be imminent due to the Yen’s weakness affecting consumer confidence.
Technical Analysis:
USD/JPY trades around 160.30 on Monday, showing a bullish trend based on daily chart analysis. The pair remains within an ascending channel pattern. However, caution is advised as the 14-day Relative Strength Index (RSI) has dropped below 70, indicating potential weakening of the uptrend.
In the short term, USD/JPY could approach resistance near 162.50, the upper boundary of the ascending channel. A breakout above this level could strengthen bullish sentiment, potentially pushing the pair toward psychological resistance at 163.00.
On the downside, immediate support is seen around the 21-day Exponential Moving Average (EMA) at 159.62, followed by the lower boundary of the ascending channel around 159.00. A further decline below this channel support could see USD/JPY testing the vicinity of June’s low at 154.55.
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