The Japanese Yen (JPY) recovered its intraday losses on Wednesday, with the USD/JPY pair potentially limiting its downside due to improved US Treasury yields. Traders remain vigilant, suspecting intervention by Japanese authorities. Data released on Tuesday indicated that the Bank of Japan (BoJ) entered the foreign exchange market on consecutive trading days last Thursday and Friday.
The BoJ’s current account balance data, also released on Tuesday, forecasted an anticipated liquidity drain of approximately ¥2.74 trillion ($17.3 billion) from the financial system on Wednesday due to various government sector transactions. This projection follows an earlier forecast of a ¥600 billion drain, according to Nikkei Asia.
Supporting the US Dollar, a hawkish speech by Federal Reserve (Fed) Board of Governors member Dr. Adriana Kugler on Tuesday indicated that if upcoming data does not confirm that inflation is moving toward the 2% target, it may be appropriate to maintain current rates for a while longer.
Traders are now awaiting key US economic data and the Fed Beige Book on Wednesday, alongside speeches from Fed officials Thomas Barkin and Christopher Waller.
Daily Digest Market Movers: Yen Inches Higher Amid Intervention Threat
Japan’s Tankan Manufacturers Sentiment Index rose to 11.0 in July from 6.0 in June, marking the first gain in four months and indicating a pickup in economic activity.
US Retail Sales for June were mostly in line with expectations, holding steady at $704.3 billion after a revised 0.3% gain in May, in line with market expectations.
During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote but indicated that if re-elected, he would allow Powell to complete his term if he continued to “do the right thing” at the Federal Reserve.
Fed Chair Jerome Powell noted on Monday that the three US inflation readings this year “add somewhat to confidence” that inflation is on course to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may not be far off.
Fed Bank of San Francisco President Mary Daly stated that inflation is cooling down in a way that bolsters confidence that it’s on its way to 2%, but added that more information is needed before making a rate decision.
US President Joe Biden, addressing the nation from the White House on Monday, condemned all political violence and called for unity, stating, “it’s time to cool it down” while addressing concerns about potential election-year violence.
According to Saxo Bank, the increasing probability of a Trump 2.0 presidency has been bolstering the US Dollar, with market participants anticipating that a second term for Trump could lead to aggressive fiscal policies and trade measures, thereby driving demand for the greenback.
BBH FX strategists highlighted recent softness in US data, posing challenges to their view that sustained inflation and strong growth in the US remain intact, noting increasing concern among Federal Reserve officials regarding weaknesses in the labor market.
Technical Analysis: USD/JPY Hovers Around 158.50
USD/JPY is trading around 158.40 on Wednesday. The daily chart analysis shows that the pair lies below its 9-day Exponential Moving Average (EMA), suggesting downward momentum in the short term. This signals that it may be prudent to hold off on buying until the trend shows signs of reversal.
Additionally, the momentum indicator, the 14-day Relative Strength Index (RSI), is below the 50 level, indicating a bearish bias. However, a further increase in the RSI could weaken the bearish sentiment.
Immediate resistance is observed around the nine-day Exponential Moving Average (EMA) at 159.20, followed by the lower boundary of the ascending channel at 160.60. Returning to trade within the ascending channel would likely improve sentiment for the USD/JPY pair, with a potential target toward the upper boundary of the channel near 164.00.
On the downside, the USD/JPY pair could find key support around the psychological level of 158.00. A break below this level could exert pressure on the pair, navigating the region around June’s low at 154.55.
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