- The US dollar remained near its highest levels in several months against the pound, euro, and other major currencies after the release of more strong economic data.
- As a result, the record breakout in the USD/JPY currency pair continued its upward trend.
- The pair is moving towards the 154.76 resistance level, the highest in 34 years.
- With only verbal intervention from Japan on the path of the yen's collapse, the upward trend continued and the dollar's gains against the yen did not stop.
After stronger-than-expected US inflation and jobs numbers that helped push the dollar to its highest in five months, the positive momentum for the dollar increased, according to the results of the economic calendar data. US retail sales were reported to rise 0.7% monthly in March, more than double the market's forecast of 0.3%.
Also announced, the Core Retail Sales Control Group measure - which excludes gasoline, cars, food services and building materials - rose 1.1% in March, beating expectations of 0.4%. Total revenue at retail stores, online sellers and restaurants rose 0.7% monthly, up 2.4% year-on-year from a year ago. The price paid element rose to its highest level since last May, consistent with evidence that inflation rates in the United States are accelerating again.
In general, market expectations for the number of Fed rate cuts in 2024 have fallen sharply in the face of rising inflation. Also, Société Générale the latest major institution to warn that it no longer expects the Fed to cut rates in 2024.
At the same time, dollar exchange rates rose amid this shift in expectations, while stock markets came under pressure. Commenting on this, Derek Halpenny, foreign exchange analyst at MUFG Bank Ltd, says, "The path for further USD appreciation from here remains clear as US CPI data is forcing markets to rethink the timing of the Fed's first rate cut."
According to analysts, US Federal Reserve Chairman Jerome Powell has no choice but to reset the clock regarding interest rate cuts in the upcoming appearances. Moreover, the US central bank's repeated assertion that official interest rates are in the “restricted” zone – perhaps determined by the difference between the Fed's real funds rate and their estimate of the “normal” interest rate – seems more difficult than ever to justify. Added, “And with activity indicators that follow indicators that rely on market evaluation to indicate a comprehensive easing in financial conditions.”
However, high inflation rates may reinforce the impression of a thriving economy, says James Knightley, chief international economist at ING Bank. He said, “We have to acknowledge that the retail sales figure is a nominal growth rate for the dollar, and with the high inflation rate, this represents a large part of the growth.” Added, “Real retail sales, i.e. inflation-adjusted retail sales, are much weaker and have been essentially flat over the past three years.”
Amid the performance of the forex market, the decline of the Japanese yen is prompting traders to strategize how far the besieged currency can fall, even with the spectre of intervention looming on the horizon. Meanwhile, JPMorgan Chase & Co and Bank of America Corp's private banking units see the number 160 as the potential next milestone for the USD/JPY currency pair, which has risen to its highest level in 34 years. T. Rowe Price is considering the risk of the Japanese yen falling to around 170 – a level last seen in the 1980s.
The path to these levels may be clearer than previously thought if recent market moves are any guide. Last week, Japanese yen fell 1% alone as fears of rising long-term US borrowing costs drove a rush to the dollar. Thus, this has dashed expectations for a rebound in the Asian currency just a month after the Bank of Japan raised interest rates for the first time since 2007.
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USD/JPY Technical Analysis and Expectations Today:
According to the performance on the daily chart, the general trend of USD/JPY is strongly bullish. Its consecutive record gains have been enough to push all technical indicators towards strong buying saturation levels. As we mentioned before, the general trend will remain bullish until real Japanese intervention in the markets to prevent further collapse of the yen occurs. Moreover, this could happen at any time. On the other hand, the factors behind the dollar's gains are strong and persistent, ensuring that the dollar makes gains against other major currencies. Currently, the nearest resistance levels for the trend are 154.90, 155.40 and 156.00, respectively.
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