For the second day in a row, the price of the USD/JPY currency pair is trying to rebound to the upside to compensate for its recent sharp losses. It pushed the currency pair towards the support level at 129.65, its lowest in two months. The rebound gains did not exceed the resistance level at 131.75, and the currency pair settled around the 131.50 level at the time of writing. The price of the US dollar interacted a lot with the effect of raising the US interest on the US banking system. At the same time the Japanese yen found the opportunity to achieve strong gains, as it is a traditional safe haven in such crises.
The highlight of the week for the US dollar is Friday's release of the Fed's preferred measure of inflation in the form of core PCE prices despite uncertainty about what the stronger-than-expected number might mean for US exchange rates. Economists on average are looking to see the index remain unchanged at 4.7% for the year to the end of February, supported by a monthly increase of 0.4%, which would be down from the previous 0.6%.
"Recent developments have also taken some focus away from the upside risks to the inflation outlook," said Lee Hardman, FX Analyst at MUFG. And while the Bank of England and the US Federal Reserve continued to raise interest rates this week in response to persistent inflation risks, market participants are not convinced that central banks will need to tighten policy much more if credit conditions are also tightened in response to a loss of confidence in the banking system.
On the other hand, financial stock gains lifted US stocks, while treasury bond yields fell as fears of contagion from banking turmoil faded. Technology stocks fell after last week's rally. According to trading, the S&P 500 index rose on Monday, with shares of financial companies in the index rising by more than 1 percent. Energy producers' stocks also advanced. The Nasdaq 100 index of heavy technology stocks ended the session down 0.7 percent, capping a two-week advance. The two-year Treasury yield headed up to 4 per cent.
Meanwhile, a measure of regional lenders rose about 2.5 percent as shares of First Citizens BancShares Inc. rose. by more than 50 percent after agreeing to buy Silicon Valley Bank of SVB Financial Group. First Republic Bank jumped on a Bloomberg report that US authorities are considering expanding an emergency lending facility that would give the lender more time to consolidate its balance sheet.
In general, the market is being pushed and pulled between banks and technology stocks. The weekend may have brought some relief to the banking sector, but it will continue to be watched closely. A measure of regional US banks has lost nearly 30 per cent since early February.
Dollar expectations against the Japanese yen today:
- According to the performance on the daily chart below, the general trend of the USD/JPY currency pair is still bearish.
- The recent attempts to rebound upwards are still weak.
- Breaking the resistance levels 132.60 and 135.30 is important to cause a change in the direction of the currency pair. Before moving towards and below the psychological support level of 130.00, it will be important for the bears to control the trend.
The currency pair may be subject to the impact of the course of the US and global banking system, the hints of US central bank officials, and anticipation of the preferred inflation reading of the US Federal Reserve.
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