At the end of last week's trading, the price of the USD/JPY currency pair got a strong positive boost from hints from the officials of the American central bank to continue the pace of raising the American interest rate. Accordingly, the dollar pair against the yen USD/JPY jumped towards the resistance level of 146.63 after declining in the middle of the trading of the same week towards the level of 144.53. The main event for the financial markets last week was Jerome Powell's speech at the Jackson Hole Symposium. The head of the Federal Reserve Bank delivered a measured speech, a speech in line with what the US Federal Reserve Bank has communicated in the past.
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Although market volatility increased slightly, the speech brought nothing new in terms of market levels at the end. Accordingly, the stock and currency markets ended the day near opening levels. However, the lack of reaction may be attributed to the timing of the speech - late in the trading week, when everyone is preparing for the weekend. Therefore, it may have some effects on trades this week, especially since it is US Non-Farm Jobs (NFP) week.
The importance of future jobs data was one of the main themes of Powell's speech, which focused on the release of the upcoming Non-Farm Jobs (NFP) report. The Federal Reserve Bank expects employment to decline and growth without direction. Overall there were many lessons learned from the weekend speech for those who monitor central banks and their actions. First, Powell noted that the causes of inflation are driven by supply and demand. The Fed's fight against inflation has driven the funds rate up significantly from its lower limits.
At current levels, interest expense on the American federal debt reached 19.5% of government revenue, becoming one of the largest government expenses.
It is certainly not the Fed's job to monitor interest expenses, but the Fed is in constant communication with the Treasury Department. In other words, interest rates are unlikely to move much higher than current levels, despite the somewhat hawkish statement in Jackson Hole. Powell hinted that inflation had peaked. Hence the price stability portion of the Fed's mandate is unlikely to dictate the next steps in monetary policy. Instead, the focus shifts to the labor market.
Second, there has been talk in the markets recently that the Federal Reserve Bank (and other major global central banks) must change the inflation target. And Powell (and Christine Lagarde of the European Central Bank) strongly rejected such a possibility.
Finally, the statements about the labor market highlighted the non-farm payrolls data this week. Powell said that the economy needs to grow without direction, and the labor market needs to decline as a result of the actions of the Federal Reserve Bank. Besides the hint that inflation has peaked, this means that the US non-farm payrolls report next Friday could lead to a rise in the stock market and a weakening of the dollar if the report comes in on the weak side.
Technical analysis of the dollar/yen pair:
- The price of the USD/JPY currency pair has risen now to trade at several levels above the 100-hour moving average.
- However, Friday's late pullback prevented the pair from rising to overbought 14-hour RSI levels.
- In general and in the near term and according to the performance on the hourly chart, it seems that the USD/JPY currency pair is trading within the formation of an ascending channel.
- The MACD seems to indicate no clear directional bias despite the recent bounce.
Therefore, the bearish speculators will target possible pullbacks at around 146.00 or below at the 145.30 support. On the other hand, the bulls will look to pounce on profits at around 146.58 or higher at the 146.80 resistance.
In the long term and according to the performance on the daily chart, it also seems that the USD/JPY currency pair is trading within an ascending channel. However, the daily MACD seems to indicate a possible pullback amid a possible bearish cross. Therefore, the bears will target potential pullback profits at around 145.25 or below at 144.06 support. On the other hand, the bulls will target long-term profits at around 147.50 or higher at the 148.75 resistance.
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