The Japanese Yen (JPY) has been facing downward pressure as traders remain cautious amid potential intervention by Japanese authorities. Recent data released by the Bank of Japan (BoJ) suggested that authorities may have spent between ¥3.37 trillion to ¥3.57 trillion on Thursday to support the JPY, following a sharp surge in the currency last week. Meanwhile, the US Dollar (USD) has strengthened as risk aversion rises following an attempted assassination of former US President Donald Trump. However, cooling US inflation has fueled expectations for a Federal Reserve rate cut in September, potentially limiting the upside of the Greenback. Investors are awaiting the release of US June Retail Sales data for further insights.
Market analysts have observed a shift in sentiment towards a potential rate cut by the Federal Reserve in September, with markets now indicating an 85.7% probability of a 25-basis point rate cut. Fed Chair Jerome Powell has expressed confidence that inflation is on track to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may be imminent. However, Fed Bank of San Francisco President Mary Daly has noted that more information is needed before making a rate decision. US President Joe Biden has called for unity and condemned political violence in the wake of the assassination attempt on Trump, urging to “cool it down” amid rising tensions.
Analysts have highlighted the adjustments in Japan’s Ministry of Finance’s FX intervention strategy, following a decline in the USD/JPY pair after the soft US CPI print. Speculative investors hold near-record short positions on the Yen, suggesting that continued soft economic data in the US could lead to pullbacks in the USD/JPY pair. Concerns over weaknesses in the US labor market pose challenges to the outlook of sustained inflation and strong growth, according to BBH FX strategists. Japanese authorities have remained vigilant regarding forex measures, with Chief Cabinet Secretary Yoshimasa Hayashi emphasizing the need for all available measures and the BoJ to sustainably achieve the 2% price target.
In terms of technical analysis, the USD/JPY pair has broken above 158.50 and currently trades around 158.70. The daily chart indicates a bullish bias as the pair approaches the lower boundary of an ascending channel pattern. Key resistance levels for the pair lie around the nine-day Exponential Moving Average at 159.46 and the lower boundary of the ascending channel at 160.30. On the downside, support can be found around the psychological level of 158.00, with further support near June’s low at 154.55. The 14-day Relative Strength Index (RSI) is below 50, suggesting a potential strengthening of the bullish trend.
Looking ahead, the focus for traders will be on the US June Retail Sales data, which is set to be released later today. The data is a crucial indicator of consumer spending, a major driver of the US economy. A high reading is typically seen as bullish for the USD, while a low reading is bearish. Investors will continue to monitor developments in US economic data, Federal Reserve statements, and any further intervention measures by Japanese authorities that could impact the USD/JPY pair in the coming days.
