USD/JPY Price Analysis – July 11, 2024
Daily Price Outlook
During the European trading session, the USD/JPY currency pair has been experiencing a bearish trend, extending its losses for the third consecutive day. This decline is primarily driven by traders' cautious stance ahead of the upcoming release of the US Consumer Price Index (CPI) data for June, scheduled for Thursday.
The CPI data is crucial as it will provide more clarity on the Federal Reserve's future monetary policy direction. Additionally, recent remarks by Fed Chair Jerome Powell, emphasizing the need to monitor the deteriorating labor market, have contributed to the uncertainty and downward pressure on the USD/JPY pair.
Another factor supporting the Japanese Yen (JPY) and contributing to the weakness of the USD/JPY pair is the rising speculation that the Bank of Japan (BoJ) may raise interest rates in its upcoming July meeting.
This speculation has bolstered the JPY, limiting its downside and adding to the bearish sentiment surrounding the USD/JPY pair.
Stability of the Japanese Government's 10-Year JGB Yield and Its Impact on USD/JPY Pair
On the JPY pair, the Japanese government's 10-year Japanese Government Bond (JGB) yield has remained stable at approximately 1.09%, close to its recent high of 1.10% recorded on July 3.
This stability has come amidst selling pressure on Japanese government bonds, reflecting overseas investors' anticipation that the BoJ may raise interest rates in response to the weakening Japanese Yen. The stability in JGB yields supports the JPY, contributing to the downward trend of the USD/JPY pair.
Furthermore, the BoJ is reportedly considering trimming this year's economic growth forecast and projecting that inflation will stay around its 2% target in the coming years.
This consideration, coupled with the BoJ's ongoing in-person meetings with banks and financial institutions to assess a feasible pace for scaling back its JGB purchases, has further influenced the market's expectations and supported the JPY.
Impact of Anticipated Fed Rate Cuts and Easing CPI Data on USD/JPY Pair
On the US front, the overall strength of the US dollar continues to decline, reflecting growing expectations that the Federal Reserve will begin cutting interest rates starting in September, possibly followed by more cuts in December.
Recent statements from Fed Chair Jerome Powell have reinforced this outlook, emphasizing the Fed's goal of keeping prices stable and considering a shift to neutral interest rates by late 2024 as inflation trends develop. Despite noting signs of economic slowdown,
On the data front, the headline Consumer Price Index (CPI) is anticipated to have risen by 0.1% in June, marking a slight easing in the annual rate from 3.3% to 3.1%. Meanwhile, Core CPI, which excludes Food and Energy prices, is expected to maintain a steady year-over-year rate of 3.4%.
The anticipation of Fed interest rate cuts starting in September and easing US CPI data has weakened the USD, contributing to the bearish trend of the USD/JPY pair.
USD/JPY - Technical Analysis
The Japanese yen is experiencing a brief respite from its recent slide against the U.S. dollar, with USD/JPY trading down slightly at 161.705. The 4-hour chart paints a cautious picture, with the pair hovering just below a pivotal resistance level at 162.1200.
This level is a key battleground for bulls and bears alike, and a decisive break above could signal a resumption of the dollar's upward trajectory, with potential targets at 162.3800 and 162.7310.
However, the 50-day Exponential Moving Average (EMA) at 161.1100 is acting as a significant support zone. A failure to break above the pivot point could see the pair retreating towards this EMA, potentially even further down to the support levels at 160.7320 and 160.2550.
The Relative Strength Index (RSI) reading of 62 suggests the pair is not yet overbought, leaving room for further upside if buyers regain control.
Given the current technical setup, traders are advised to approach with caution. A prudent strategy would be to wait for a confirmed break above 162.1200 before initiating long positions.
Alternatively, aggressive traders could consider buying above 161.470, with a stop-loss order placed below 161.184. The initial target for profit-taking would be the pivot point at 162.120.
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