Before announcing an update on the monetary policy decisions of the US Federal Reserve today, the USD/JPY currency pair was sold, which pushed it towards the support level of 136.31. This happened before settling around the level of 136.55 at the time of writing. Its gains, after the Japanese Central Bank maintained its stimulus policy, reached the resistance level of 137.77, the highest level for the currency pair in two months.
Nerves are running high about facing the debt ceiling in the US, with default potentially destabilizing the global economy, just as fears about further banking fallout have subsided for the time being. With congressional leaders summoned by US President Biden, the focus now turns to how the US government will be able to pay its bills amid the deadlock in Washington. But there is at least relief that federal regulators won't be on the hook for emergency bank funding, now that they've sealed the sale of First Republic Bank.
JP Morgan may have swallowed the struggling lender, with wealthy depositors now cut off, but the US banking sector is still suffering from a small bout of indigestion, as investors fear there may be more unpalatable problems. However, the drop in share prices in the US regional banks was less than expected, and the takeover helped calm any nerves of London-listed banks with Barclays and Lloyds over higher profits at HSBC.
The bailout is meant to create stability, but the collapse of such a huge bank will inevitably lead to some lingering tensions. JP Morgan's head, Jamie Dimon, has tried to calm nerves by noting that this purchase helped end the banking crisis.
There are no big banks teetering on the brink like First Republic after the sheer size of the deposit flight became apparent.
Concern lingers that a wave of anxiety could mount again around other parts of banks' portfolios such as commercial real estate, which is under pressure from sharply rising interest rates as many billions of dollars in loans are offered for renewal. There is a safety valve for the Fed's lending programs, and financing remains highly exploited. Demand for liquidity from the Fed's discount window and the FHA's bank plan continues as lenders adopt defensive strategies.
Dollar expectations against the Japanese yen today:
- The general trend of the USD/JPY currency pair is still bullish.
- The bulls can move towards the psychological resistance level 140.00, the November 2022 peak, which confirms the strength and continuity of the current trend.
- This may happen if the US Central Bank confirms today the tightening policy, which Contradicts the loose policy of the Central Bank of Japan.
If the recent selling continues, the bears may collide first with the support levels at 135.20 and 134.00, respectively. The last level is a strong threat to the recent bullish move.
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