For three consecutive trading sessions, the price of the USD/JPY currency pair stabilized around its recent strong gains. This affected the 142.00 resistance level, the highest for the currency pair in seven months. With Japan ignoring the collapse of the yen in the markets, the currency pair maintains its gains, despite the negative impact of the US dollar by keeping the US Federal Reserve on US interest rates unchanged.
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All in all, another busy trading week has begun as markets hope to decipher the US Federal Reserve's policy path more from Jerome Powell's congressional hearings than they did from last week's meeting. Powell is scheduled to address both chambers of Congress on Wednesday and Thursday in his semi-annual testimony just one week after the Fed skipped raising US interest rates for the first time in 10 meetings.
The pause was initially greeted with euphoria on Wall Street and the US dollar came under heavy selling pressure in the forex markets, but doubts are now creeping in. It comes after a slew of Fed speakers on Friday kept the door wide open for further rate hikes. In particular, Governor Waller warned that "further tightening" is likely to be needed because "inflation is not moving."
Accordingly, the comments reinforced expectations that the July meeting will be “alive”, although most investors are betting either in September or November on one last increase, while the first cut has been postponed to January 2024. The repricing of Fed funds futures contracts gave US dollar modest boost but US stocks closed Friday in the red. US markets were closed yesterday in observance of Juneteenth, with futures trading stable.
In forex trading, both the euro and the British pound rose last week as the European Central Bank raised interest rates by 25 basis points and signaled that there is more to come, while the Bank of England is expected to do the same on Thursday when it announces its decision. But although their rally appears to have lost steam after the Fed's hawkish talk, both currencies are holding steady as the ECB and BoE's policy paths are clearer in the near term than the Fed's.
The Bank of England in particular is likely to have the most room to cover amid rampant inflation than other countries and the continued resilience of the UK economy.
Forecasts of the US dollar against the Japanese yen today:
- The general trend of the USD/JPY currency pair is still bullish.
- Its gains are towards the resistance 142.00, above which it moves the technical indicators towards strong overbought levels.
- According to the performance on the daily chart below, there will be no first break of the trend without moving below the support level 140.00. as a first stage.
I expect the price of the dollar/yen currency pair to remain stable around its gains until the markets react to the testimony of US Central Bank Governor Jerome Powell or any hints from Japan about intervention in the markets to prevent a further collapse of the Japanese yen against the rest of the other major currencies.
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