The US dollar fell in value midweek versus a basket of key rivals, gaining ground primarily against the euro and the Swiss franc. In spite of a dismal ISM Manufacturing PMI for June, investors may have hung on to their short positions on Tuesday because of the holiday. US markets were closed because of the holiday.
Both market expectations and Treasury yields have not changed in response to the Fed’s dovish stance. Until 2024, investors anticipate a gradual rate decrease followed by a minor rate increase of slightly over 30 basis points. Traders may pay closer attention to news that can shed light on the future course of interest rates in light of this context. The minutes from the Federal Open Market Committee’s meeting in June may contain the next update.
Even if there appears to be disagreement among US central bank officials about how far to take interest rate hikes, the minutes from yesterday’s meeting reveal that the bank will continue to do so until the United States’ record inflation is brought under control. It’s doubtful that the minutes will contain any shocks, given that officials’ opinions are already reflected in the points chart and that Fed Chairman Jerome Powell has spoken numerous times since then.
ADP and ISM Non-Manufacturing PMI readings may be more important to investors than Friday’s US Non-Farm Payrolls figures. In the wake of the ISM Manufacturing PMI’s price and employment subcomponents falling by more than predicted, investors may be looking for further evidence of whether pricing pressures will continue to relax rapidly and whether the labor market is, in fact, weakening.
It is possible that the impending economic data may cause traders to reduce their expectations for rate hikes and boost their cut bets for next year, both of which would be detrimental to the value of the US dollar.
Even though the yen strengthened against the dollar, some investors may have sold long USD/JPY positions near the 145.00 psychological level out of concern for a possible intervention by the Japanese government. The senior financial diplomat of Japan, Masato Kanda, said yesterday that they are in frequent communication with US Treasury Secretary Janet Yellen and other outside authorities “almost every day,” which gives greater credence to traders’ concerns and could lead to further liquidation or hedging. quick yen transactions.
A cautious and sluggish break of 145.00 in USD/JPY may not trigger alarm bells just yet, given that Japanese authorities have emphasized they are examining the pace of the JPY’s slide rather than the level. While reiterating that Japan and the US remain in constant contact, Finance Minister Suzuki refrained from using language he had previously employed prior to last year’s intervention, such as “deep concern about the weakness of the yen.” So, even if the USD/JPY exchange rate rises above the 145.00 mark, an intervention loop may be postponed if the rate of decrease is low enough.
Forecasting the USD/JPY Exchange Rate from a Technical Perspective
The USD/JPY has seen a downward trend today, but the daily chart indicates that this is really a temporary blip in an otherwise bullish trend. Recent high gains have pushed technical indicators to severe overbought levels, making this move a natural one.
Narrow range trading may persist until after the release of key US economic data today and tomorrow, the findings of which will have a direct and strong impact on the prospects for a future increase in US interest rates. Moving approaching the 142.20 and 141.00 support levels would be necessary for the currency pair to make its first break of the trend.
