Despite the halt on the US interest rate hike path, there is still a strong contrast between the policy of the soft Japanese central bank and the US central bank. It is still tightening its policy to curb US inflation, which has allowed the bulls to push currency pair USD/JPY towards the 141.93 resistance level. That’s a seven-month high for the currency pair and has been steady near it in early trading this week.
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On a year-over-year basis, the dollar-yen currency pair, USD/JPY, has now been trading several levels above the 100-hour moving average. As a result, the currency pair appears to be about to enter the overbought levels of the 14-hour RSI.
According to economic analysis, the currency pair USD/JPY is trading influenced by the results of the latest economic data. The Bank of Japan on Friday, in line with expectations, voted to leave the key interest rate unchanged at -0.1%. Before that, Japanese imports for May beat the expected change of -10.3% with a change of -9.9% (y/y), while exports for the period beat the expected change (y/y) of -0.8% with a change of 0.6. %. Machinery orders for April were also better than expected, while overall merchandise trade for May missed estimates.
In the US, Michigan’s preliminary consumer confidence index for June topped expectations of 60 with a reading of 63.9. Inflation expectations for the period differed by 3% from the expected rate of 3.1%. Earlier in the week, U.S. retail sales for May beat expectations of -0.1% with a 0.3% change, while the Retail Sales Watch Group beat expectations for a 0% change with a 0.2% change. Retail sales excluding autos matched the expected change of 0.1%.
U.S. Federal Reserve Governor Jerome Powell will be in the spotlight on Capitol Hill this week, a week after the Federal Reserve halted its most aggressive tightening campaign in a decade, as investors watch for clues as to whether central bankers are indeed leaning toward further rate hikes. The chairman of the Federal Reserve System will deliver a semiannual report on the central bank’s monetary policy to the House of Representatives on Wednesday and to the Senate the following day.
Separately, three Fed nominees face potentially contentious confirmation hearings.
Overall, Powell is likely to face questions about the Fed’s decision to take a breather after 10 consecutive U.S. interest rate hikes as he assesses how the economy is responding to rising borrowing costs and recent banking pressures. The decision was puzzling to many as officials’ latest median forecast showed the record rate rising to 5.6% by the end of the year, compared with a March forecast of 5.1%.
Democrats can praise the Fed for taking a break and remind Powell that excessive rate hikes could put millions of Americans out of work. At the same time, Republicans can convey the message that inflation remains too high, causing pain to families and small business owners. Both parties may press Powell to explain how the central bank plans to improve financial oversight after several regional banks failed this year. Fed governors Philip Jefferson and Lisa Cook and nominee Adriana Kugler, now the US representative to the World Bank, will face members of the Senate Banking Committee on Wednesday as part of the confirmation process.
- In the short-term and from performance on the hourly chart, USD/JPY appears to be trading in a bullish channel formation.
- This indicates a significant short-term bullish bias in market sentiment.
- Therefore, the bulls will look to extend the current rally towards 142.785 or above the 143.641 resistance.
- On the upside, bears will target gains around 140.822 or below at support of 139.965.
From a longer-term perspective and from performance on the daily chart, USD/JPY appears to be trading within an ascending channel formation. This indicates a significant long-term bullish bias in market sentiment. Therefore, bulls will target long-term gains around 144.799 or above the 148.337 resistance. On the downside, bears will look to pounce on a pullback around 138.768 or lower at 135.195 support.
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