The course of the US dollar pairs is on an important date this week, with a package of economic data and influential events, led by the announcement of US interest rates. Besides readings of US inflation and retail sales. Prior to that, the USD/JPY currency pair was exposed to downward pressures in the past week, reaching the support level of 138.75, and settling around the level of 139.30 at the beginning of this exciting week's trading.
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Major Chinese economic indicators due for release Thursday will likely show a slowdown in consumer and business activity in May as the post-pandemic boost fades. The People's Bank of China will have an opportunity to add more monetary stimulus, although the majority of economists surveyed by Bloomberg expect no change in rates yet.
The Bank of Japan holds its second policy meeting under the chairmanship of Governor Kazuo Ueda at the end of the week. Most economists are not expecting any change this time as speculation continues that Japanese Prime Minister Fumio Kishida is considering early elections.
Economic Outlook
The USD/JPY currency pair is trading affected by the results of recent economic data, as US initial jobless claims last week exceeded the estimated total of 235 thousand with the number of claims 261 thousand. Before that, the trade balance of goods and services for the month of April exceeded expectations at -75.2 billion dollars with a balance of -74.6 billion dollars. The ISM Services PMI for May missed expectations at 51.5 with a reading of 50.3. The S&P Global Services Purchasing Managers' Index also fell short of estimates.
In Japan, Q1 GDP exceeded the expected (QoQ) change of 0.5% with a change of 0.7%. The annual GDP for the period also beat expectations by 1.9% with a change of 2.7%, while the GDP deflator was in line with the expected change (on an annual basis) at 2%. Japan's non-seasonal adjusted current account balance for April exceeded expected performance.
Investors are generally snapping up options as they prepare for the pivotal Federal Reserve decision that is set to dictate the tone for stocks heading into the second half of 2023. Options trading on US stock exchanges sometime last week showed the largest bias toward expectations in 14 months, according to data compiled by bloomberg. Using the forecast allows investors to catch the upside if the bull market proves resilient, while remaining defensive because they are worried about what the Fed might signal this week about its policy path.
The US central bank is expected to stop tightening on Wednesday for the first time in 15 months. The danger, however, is that a resilient economy keeps inflation stubbornly high, prompting officials to pick it up again as soon as next month or keep borrowing costs high for a while longer. That could affect interest rate-sensitive big tech stocks that have been key to the market's gains. All of this makes this Fed decision and subsequent comments by Bank Governor Jerome Powell as crucial as investors' attitude for the rest of the year. Tuesday's CPI reading also takes on additional importance, as indicators of subduing inflation could boost equities, including areas such as banks and small businesses that are closely linked to the health of the economy.
Technical analysis of the USD/JPY pair:
- In the near term, according to the performance on the hourly chart, it appears that the USD/JPY is trading within a consolidating triangle formation.
- This indicates that there is no clear directional bias in market sentiment.
- Therefore, the bears will target the break-down at around 139.108 or below at the support 138.768.
- On the other hand, the bulls will target the upside breakout around 139.690 or higher at the resistance 139.997.
On the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of an ascending channel. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will look to pounce on profits at around 140.856 or higher at the resistance 142.232. On the other hand, the bears will target long-term profits at around 137.896 or below at 136.387 support.
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