(Kenny Fisher – MarketPulse)
The Japanese yen is in positive territory today after starting the week with sharp losses. USD/JPY is trading at 138.22, down 0.34%.
Japan releases a host of events on Wednesday, including retail sales and consumer confidence. Retail sales for July is expected to come in at -0.5% MoM, following a 1.4% decline in June. Consumer confidence remains weak, with a July estimate of 31.0, following the June read of 30.2. The Japanese consumer is in a sour mood and nervous about the economy, so it’s no surprise that she is holding tight to the purse strings as inflation continues to rise.
Yen remains under pressure
The yen remains under pressure and took it on the chin after Fed Chair Powell’s speech at Jackson Hole on Friday. Powell’s brief speech went straight to the point, pledging to continue raising rates until inflation was brought under control. Powell pointedly said that one or two weak inflation reports would not cause the Fed to U-turn on its tightening, a veiled reference to the market euphoria which followed the July inflation report, which was lower than the June release. With the equity markets taking a tumble after Powell’s speech, it appears that investors have finally gotten the Fed’s hawkish message.
Powell’s speech removed any doubts about the Fed’s plans to continue raising rates, but the size of the increases will depend not just on inflation, but also on other economic data. Overshadowed by Jackson Hole, US Personal Income and Spending data was weaker than expected. As well, the Core PCE index, the Fed’s preferred inflation indicator, fell to 6.3%, down from 6.8% and below the forecast of 7.4%. If Friday’s non-farm payrolls report is weaker than expected, it would be a clear indication that the sharp increase in rates is having its desired effect and the economy is slowing. In such a scenario, Fed policy makers may be more inclined to raise rates at the September meeting by only 50 basis points, rather than 75bp.
- USD/JPY is testing support at 1.3822. The next support line is at 137.01.
- 1.3891 and 1.4012 are resistance lines.
Daily technical and trading outlook – USD/JPY
Trend daily chart
21 HR EMA
55 HR EMA
Trend hourly chart
Easing fm o/bot.
13 HR RSI
14 HR DMI
Resumption of recent upmove.
140.00 – Psychological handle.
139.39 – Jul’s 24-year high (14).
139.00 – Mon’s high.
138.28 – Mon’s NY low.
1338.09 – Hourly chart.
137.71 – Aug 23 high (now sup).
USD/JPY – 138.70.. The greenback caught a bid in NZ Mon at 137.52 n easily penetrated Fri’s 137.74 high ahead of Tokyo open n rallied on broad-based yen selling to a 6-week peak of 139.00 b4 retreating on profit taking to 138.28 (NY).
On the bigger picture, dlr’s spectacular rally fm 2011 historic low at 75. 32 (Mar) due to co-ordinated CCY intervention by G7 central banks to weaken the yen in the aftermath of Japan’s earthquake and tsunami of Mar 2011 to as high as 125.86 (2015) confirms major low has been made. Although the pair fell back to 99 .00 in mid-2016 n swung broadly sideways until 2021, price rallied in tandem with U.S. yields to a 24-year peak of 139.39 in mid-Jul b4 retreating. Despite a sharp fall to a 7-week 130.41 trough on Aug 01, dlr’s subsequent gain to 137.74 last Fri signals pullback over n would bring re-test of 139.39 in early Sep, then twd 143.36. Only below 130.41 risks stronger retracement twd 126.37.
Today, dlr’s impressive rise to 139.00 suggests re-test of Jul’s fresh 24 -year peak at 139.39 would be seen after consolidaton, however, ‘bearish divergen ces’ on hourly indicators should cap price below psychological 140.00 handle. On the downside, only below 138.00 dampens bullishness n risks 137.71/74.