Tokyo, Japan – The Japanese Yen (JPY) continued its decline on Tuesday, with traders remaining vigilant following last week’s 2% surge, attributed to a suspected intervention by Japanese authorities. Data from the Bank of Japan (BoJ) on Friday suggested that authorities may have spent between ¥3.37 trillion and ¥3.57 trillion on Thursday to curb the Yen’s rapid depreciation, according to Reuters.
Meanwhile, the US Dollar (USD) strengthened, driven by rising risk aversion after the attempted assassination of former US President Donald Trump on Saturday. Despite this, cooling US inflation has bolstered expectations for a Federal Reserve rate cut in September, potentially capping the Greenback’s gains. Investors are now eyeing the US June Retail Sales data, set for release on Tuesday, for further market insights.
According to the CME Group’s FedWatch Tool, there is now an 85.7% probability of a 25-basis point rate cut at the September Fed meeting, up from 71.0% a week earlier.
Market Movements: Japanese Yen Faces Pressure Despite Intervention
Fed Chair Jerome Powell remarked on Monday that the year’s three US inflation readings “add somewhat to confidence” that inflation is on track to meet the Fed’s target sustainably, hinting that interest rate cuts may soon be on the horizon. Similarly, Fed Bank of San Francisco President Mary Daly acknowledged that inflation is cooling, reinforcing confidence that it’s approaching the 2% target. However, Daly emphasized the need for more data before making a rate decision.
In a national address on Monday, US President Joe Biden condemned all political violence and called for unity following the attack on Trump, as reported by CNBC. Biden emphasized the importance of reducing tensions, noting the potential for election-year violence.
ING’s FX analyst Francesco Pesole observed that Japan’s Ministry of Finance has revised its FX intervention strategy. Following the soft US CPI report on Friday, the USD/JPY pair declined by approximately 2%, a more significant drop than other USD pairs. This aligns with increased JPY futures volumes, indicating possible FX intervention.
UBS FX strategists noted that speculative investors hold near-record short positions on the Yen, suggesting that positive US economic data could lead to pullbacks in the USD/JPY pair.
BBH FX strategists highlighted recent softness in US data, challenging their view that sustained inflation and strong growth remain intact in the US. They noted increasing concern among Federal Reserve officials about labor market weaknesses.
Japanese Chief Cabinet Secretary Yoshimasa Hayashi expressed readiness to use all available measures concerning forex. He expects the BoJ to implement appropriate policies to achieve the 2% price target sustainably and steadily, as reported by Reuters on Friday. Japanese Finance Minister Shunichi Suzuki reiterated the undesirability of rapid FX movements but declined to comment on intervention specifics or FX rate checks.
Technical Analysis: USD/JPY Breaks Above 158.50
On Tuesday, the USD/JPY traded around 158.70, reinforcing a bullish bias as it approached the lower boundary of an ascending channel pattern. The 14-day Relative Strength Index (RSI) remains slightly below 50. Immediate resistance is seen around the nine-day Exponential Moving Average (EMA) at 159.46, followed by the ascending channel’s lower boundary at 160.30. A return to this channel could bolster sentiment, targeting the upper boundary near 163.70.
Conversely, key support for the USD/JPY pair is around the psychological level of 158.00. Falling below this level could pressure the pair to test June’s low of 154.55.
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