Federal Funds Rate Under Spotlight
The USD/JPY was closed at 109.76 after placing a high of 110.41 and a low of 109.58. The currency pair USD/JPY dropped for the second straight day on Tuesday and reached below 110 level amid the fresh weakness in the U.S. dollar. The U.S. dollar index, along with the benchmark U.S. Treasury Yields on the 10-year note, fell on Tuesday and weighed on the greenback. The U.S. dollar traded on the back foot ahead of the U.S. Fed monthly policy meeting as investors were cautious about placing strong bets before having a definite clue about the next move from Fed.
The U.S. Dollar Index (DXY) that measures the greenback value against the basket of six major currencies, fell to 92.32 level on Tuesday, and the U.S. Treasury Yield on 10-year did not also remain lower for the day with a 5% loss at 1.22%. These negative developments surrounding the greenback weighed heavily on the currency pair USD/JPY, and hence, the pair turned red for the second consecutive session.
On the data front, from the Japanese side, at 04:50 GMT, the SPPI for the year remained flat with the expectations of 1.4%. From the U.S. side, at 17:30 GMT, the Core Durable Goods Orders from June reduced to 0.3% against the anticipated 0.8% and weighed on the U.S. dollar that added further loss in USD/JPY. The Durable Goods Orders also dropped to 0.8% against the estimated 2.1% and weighed on the U.S. dollar, increasing the downward pressure on USD/JPY. At 18:00 GMT, the HPI for May rose to 1.7% against the projected 1.6% and supported the U.S. dollar that further caped loss in the USD/JPY pair.
The S&P/CS Composite-20 HPI for the year increased to 17.0% against the anticipated 16.1% and supported the U.S. dollar that limited the loss in USD/JPY. At 18:59 GMT, the Richmond Manufacturing Index in July advanced to 27 against the expected 20 and supported the U.S. dollar, limiting the loss in the USD/JPY pair. At 19:00 GMT, the CB Consumer Confidence for July improved to 129.1 against the predicted 123.9 and supported the U.S. dollar that kept the USD/JPY pair supported through the pressure.
The governor of the Bank of Japan, Haruhiko Kuroda, said that the bank was ready to modify the steps it was rolling out while dealing with climate change. He added a need for a learn-by-doing approach as it would help in the transition of companies and banks towards a greener society. He further compared the climate approach adopted by the Bank of Japan with that of some European counterparts and said that BOJ had no plans of adding green bonds in its asset purchases program. At the same time, the Japanese central bank aims to offer cheap funds to financial institutions that boost green investment and loans. The commercial banks will be responsible for deciding which loans should fall under the green category, and this is how BOJ will tackle climate change.
These comments from Kuroda added strength to the Japanese Yen that ultimately weighed on the currency pair USD/JPY and dragged the pair further on the downside. Furthermore, the investors were awaiting the statement of monthly policy from the U.S. Federal Reserve to find clues about the timeline for tightening monetary policy. The Fed was reluctant to tighten the policy as the number of coronavirus cases in the United States increased daily. Federal Reserve will state on Wednesday, followed by the news conference of Chairman Jerome Powell, who is expected to provide clues about the timeline to start tapering of asset purchases by the Fed.
USD/JPY Intraday Technical Levels
Pivot Point: 109.92
USD/JPY - Technical Outlook
The USD/JPY is trading sideways on Wednesday, with a narrow trading range of 109.990 – 109.585. On the downside, the breakout of 109.585 levels exposes the safe-haven currency pair towards the 109.175 support level. Conversely, the 50 period moving average provides resistance at 109.990 level, and bullish crossover of this level exposes the USD/JPY pair towards 110.500 level. The MACD is holding into the selling territory; therefore, the investor’s focus will be on the intraday pivot point resistance level of 109.920 level. During the U.S. session, the U.S. Fed Policy meeting will be determining the further trend in the USD/JPY pair. All the best.
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