The Japanese Yen is currently trading above 160.00 against the US Dollar, facing a 5.77% devaluation since its last intervention in May. This comes as the US Dollar strengthens due to hawkish comments from US Federal Reserve officials. The DXY US Dollar Index is also stronger, with support coming from the declining Japanese Yen and uncertainties in the Euro ahead of French snap elections and deteriorating German consumer confidence.
Japanese authorities are closely monitoring the situation, with Vice Minister of Finance Masato Kanda stating that appropriate steps will be taken when needed. Analysts are predicting a further decline in the USD/JPY pair, with expectations of it falling to 120.00 within the next 18 months. The authorities are unlikely to intervene until after the US Personal Consumption Expenditures print on Friday, which could potentially trigger volatility and lead to intervention.
In terms of economic data, the Mortgage Bankers Association has reported a 0.8% increase in mortgage applications for the week ending June 21. New Home Sales data for May is expected to show a slight increase to 640,000 from April’s 634,000. The US Treasury will allot a 5-year Note in the markets, and the Federal Reserve’s Bank Stress Test report will be released later in the day.
Despite the Dollar strength, equities are giving up their early recovery, with both European and US indices trading lower. The CME Fedwatch Tool is predicting a rate cut in September, with odds standing at 57.9% for a 25-basis-point cut. The Overnight indexed Swap curve for Japan shows a 56.6% chance for a rate hike on July 31. The US 10-year benchmark rate is trading near the weekly high at 4.27%, while the benchmark 10-year Japan Treasury Note trades around 1.023%, breaking above 1% for the first time since June.
In terms of technical analysis, the USD/JPY pair is showing overbought conditions in the daily chart, with the RSI indicating overheating. The key level to watch is around 160.00, where Japanese authorities intervened last time. Further upside could see the pair testing the 163.00 level, while downside support lies at 151.95. Authorities are likely to wait for US data before deciding on any intervention.
