The neutral performance of the USD/JPY currency pair continues. There will be no opportunity for the bulls to strongly control the performance without moving towards the resistance levels 134.85 and 135.40, respectively. This and more may happen if the US economic growth figures and the US Federal Reserve’s preferred inflation reading support the US central bank’s tightening policy path.
On the other hand, the agreement on safe borders for US debt will affect the US dollar pairs. The US Treasury reached its debt limit on January 19, 2023, leaving it dependent on incoming tax receipts and other extraordinary measures to stay funded, although some analysts estimate those resources will run out sometime in June without action from Congress and the White House.
The US Treasury states that “failure to increase the debt limit will have catastrophic economic consequences. This will result in the government defaulting on its legal obligations — an unprecedented event in American history.” And the report adds: “This would precipitate another financial crisis and threaten the jobs and savings of ordinary Americans — and send the United States back into a deep economic chasm, just as the country is recovering from the most recent recession.”
There is always uncertainty about the timing of any cap increase, but it is much higher this time due to more radical government policy agendas, higher and escalating expenditures and a highly polarized political environment. Technically, it falls to the White House and the ruling Democratic Party to make concessions whenever and wherever opposition votes are needed.
But it is not clear whether any of the parties involved would be able and willing to agree on a proposal leaving enough time to avoid a technical default. According to some analysts, “potentially significant policies and concerns about future US debt/default risks may increase the desire to diversify outside the US dollar (beyond concerns about US financial sanctions risks – eg Russia).” We have already seen growing evidence of global central banks buying gold as an example of diversification, but assets other than the US dollar could benefit broadly - including the renminbi, following recent announcements from parts of emerging markets and the Middle East.
While there is still at least a month to go to approve a proposal, the risk is that all of the above stimulates a hedge of dollar exposure, leading to gains for other currencies such as the British pound and potentially extending an already-significant upward move in gold prices. Beyond that, any technical default or greater probability would simply provide comfort and solace to Russian President Vladimir Putin's right-hand man, Dmitry Medvedev, who made a whole bunch of dodgy predictions in December.
Dollar expectations against the Japanese yen today:
- The USD/JPY currency pair is trading bullish after rebounding amidst a bullish channel that recently formed on the daily chart.
- The pair will try to extend the upward movement and target the daily 200 Simple Moving Average.
- Despite the bullish situation, investors may want to prepare for a sudden bearish reversal and close below the channel.
- Each upward correction represents an opportunity for traders to enter short positions near resistance levels.
- The closest resistance levels for the currency pair are currently 134.90 and 135.70, respectively.
The channel break is first represented in the support level of 133.20. The dollar will be affected by the announcement of this US consumer confidence reading, in addition to whether or not investors are willing to take risks.
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