- USD/JPY is the closest to testing the psychological resistance of 160.00 at the start of this week’s trading.
- An army of retail traders appears to be reloading bets on a yen recovery as the currency’s decline increases the chances of Japan intervening in the market again.
- Concurrently, data from the Tokyo Financial Exchange showed that bullish positions on the yen against the US dollar have been building since mid-May through futures contracts that cater to individual Japanese investors.
- Furthermore, these bets were reduced on April 29 and May 1-2, when the government is believed to have entered the market, suggesting that retailers sold the yen to take profits.
"As the yen depreciates towards 160 yen against the dollar, retail traders are on the edge of their seats and want to intervene as soon as possible," said Takumi Kanda, head of research at the analysis unit at Gaitame.com, a Japanese online brokerage firm that caters to individual forex traders.
Overall, trying to ride the government's coattails to riches is a risky strategy, especially for those using borrowed money to amplify returns. Some investors were burned badly when the Ministry of Finance ordered the Bank of Japan to enter the market to defend the currency in April and May. But others who got the timing right made millions of yen.
Elsewhere, the Federal Reserve’s preferred inflation gauge is expected to show its smallest monthly advance since late last year — a trigger for officials to begin cutting interest rates, perhaps as soon as September. Economists are forecasting no change in the U.S. personal consumption expenditures (PCE) price index for May and a slight 0.1% increase in the core measure, which excludes food and energy, based on the median forecast in a Bloomberg survey of economists.
The report, due out next Friday, is also expected to show a 2.6% annual advance in both the headline and core measures. The expected increase in the core measure, which paints a better picture of underlying inflation, would still be the smallest since March 2021.
Since their last meeting, Fed officials have said that while they are encouraged by the easing in other inflation data - including the consumer price index - they need to see more months of this progress before cutting rates. The latest inflation figures will be accompanied by personal spending numbers that will report on services spending after recent retail sales data showed a decline in appetite for goods. Median forecasts call for a slight acceleration in both nominal personal consumption and income.
Other data in this new week include June consumer confidence readings and reports on May contract signings to buy new and previously owned homes. In addition to the third estimate of first-quarter economic growth, the government will release May durable goods orders figures.
USD/JPY Technical Analysis and Expectations Today
The USD/JPY exchange rate has been rising for the past six consecutive days and is slowly approaching its all-time high as the yen sell-off intensifies. It was trading at 158 on Friday and was approaching its all-time high of 160.2. recently, it has gained more than 13% from its January low.
The USD/JPY exchange rate has been on a strong rise in the past few months. On Friday, it rose to a high of 158.90 as bulls targeted the year-to-date high of 160.22. Overall, the pair has remained above its 50-day and 25-day exponential moving averages (EMA). Similarly, the Relative Strength Index (RSI) moved above the neutral zone while the MACD lines crossed over each other. However, the pair has formed a rising wedge chart pattern, which is a common bearish signal. Therefore, while the uptrend may continue, there is a possibility that the pair could witness a bearish breakout soon. If this happens, it is likely to retest the key support at 157. Ultimately, the expected Japanese intervention will bring strong profit-taking to the currency pair.
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