A trading week dominated by bears towards the US dollar pairs, and the price of the US dollar against the Japanese yen (USD/JPY) currency pair moved amid bearish momentum towards the 132.50 lowest support level for the currency pair in a month and a half. It closed the week’s trading stable around the 133.22 level. The losses of the currency pair were primarily due to Investors abandoned the US dollar, even temporarily, after the announcement of the latest update of the Federal Reserve and economic growth figures, which confirmed a technical recession in the United States.
USD/JPY Economic Forecast
The USD/JPY currency pair is trading affected by the announcement that the US core PCE price index for June exceeded expectations (monthly) and (annual) at 0.5% and 4.7%, respectively, with readings of 0.6% and 4.8 %. Personal income and personal spending also beat expectations by 0.5% and 0.9%, respectively, with readings of 0.6% and 1.1%. On the other hand, the Michigan Consumer Confidence Index for July exceeded expectations at 51.1 with a reading of 51.5, while the Chicago PMI fell from the forecast of 55 with a reading of 52.1.
In Japan, the proportion of job applicants for June came in at 1.27 versus expectations of 1.25, while the Tokyo CPI for July outperformed 0% with a (annual) change of 2.5%. On the other hand, the Japanese unemployment rate for June remained unchanged at 2.6%, slightly ahead of expectations at 2.5%, while the preliminary industrial production for the month of June rose by 8.9% (MoM), beating the expected growth rate of 3.7%. Elsewhere, retail sales data for June missed out on all counts.
The US dollar fell slightly after the US Federal Reserve raised interest rates by 75 basis points, and the US GDP report confirmed that the US economy has now entered a recession with the economy contracting - 0.9% q/q in the second quarter and this is the second quarterly contraction.
This appears to be priced well, but the Japanese yen has risen strongly, and the US dollar is showing signs of weakness across many currency pairs. The Fed has little incentive to undo its fast-paced rate-raising cycle after its preferred measure of inflation came in above expectations. The dollar recovered after the Bureau of Economic Analysis said its measure of inflation, the core PCE price index, rose 0.6% month-over-month in June, topping analysts' consensus expectations of 0.5% and doubling May's reading of 0.3%. The index is up 4.8% in the year to June, higher than the 4.7% the market was looking for and the previous figure of 47%.
According to the Federal Reserve Bank. Personal consumption expenditures are hugely important to his policy. The FOMC inflation target is set in terms of the rate of change in the price index of total personal consumption expenditures (PCE). Wells Fargo says they don't think the US economy is still in a recession, but they expect it will slide into one by the beginning of next year. There was more data released on Friday that indicated that investors may be premature in anticipating a rollback of the current Fed policy.
Technical Outlook for the USD/JPY:
In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within a descending channel formation. This indicates a significant short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current decline towards 132.58 or lower to 131.82. On the other hand, the bulls will target short-term profits at around 134.04 or higher at 134.73.
In the long term and according to the performance on the daily chart, it appears that the USD/JPY has declined recently to complete the downside breakout from forming an ascending channel. This indicates that the bears are trying to control the pair. Therefore, they will target extended pullback profits at around 129.94 or lower at 126.73. On the other hand, the bulls will target long-term profits at around 136.58 or higher at 139.38.
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