Published on Jun 13, 2023

Daily Analysis For USD/JPY 13-06-2023

USD/JPY Analysis

Key Points: -

· The USD/JPY pair has gained momentum, recovering from intraday losses, which were the first in three days.

· Despite discouraging economic data from Japan, the dovish stance of the Bank of Japan (BoJ) is defended, while concerns related to the Federal Reserve (Fed) have spurred a rebound in the USD/JPY pair.

· The direction of US inflation data is critical in confirming the market's expectations regarding the interest rate bias for the June Federal Open Market Committee (FOMC) meeting, and it is likely to favor the bears in the USD/JPY pair.

· BoJ officials have explicitly dismissed any possibility of a policy change, but doubts persist among market participants.

Today's Scenario: -

The USD/JPY pair faces selling pressure during the Asian session on Tuesday, struggling to maintain the gains it achieved in the past two days. Currently trading below the mid-139.00s, the pair has declined by around 0.15% for the day, remaining within a familiar trading range observed over the past two weeks.

The US Dollar (USD) is weakened by growing expectations that the Federal Reserve (Fed) will likely refrain from raising interest rates in June. This has resulted in the USD reaching its lowest level since May 22 and serves as a primary factor for the downward pressure on the USD/JPY pair. Influential Fed officials have recently hinted at a pause in the central bank's ongoing policy tightening cycle, leading to a decline in US Treasury bond yields and further weighing on the Greenback.

Additionally, concerns about a global economic slowdown, coupled with the possibility of Japanese authorities intervening in the markets to support the domestic currency, have bolstered the safe-haven appeal of the Japanese Yen (JPY). This contributes to the negative sentiment surrounding the USD/JPY pair. However, expectations that the Bank of Japan (BoJ) will maintain its dovish stance may limit significant gains for the JPY and help mitigate losses for the pair, at least in the near term.

Notably, BoJ Deputy Governor Masazumi Wakatabe emphasized on Monday that there are strong reasons to continue with the current ultra-easy monetary policy measures. In contrast, Fed funds futures indicate that the markets are pricing in the possibility of a 25 basis points rate hike at the July Federal Open Market Committee (FOMC) meeting. These expectations were bolstered by surprise rate hikes from the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) last week, indicating that the fight against inflation is ongoing.

As a result, market focus will be on the release of the latest US consumer inflation figures scheduled for later in the early North American session. A stronger Consumer Price Index (CPI) reading would support the likelihood of further policy tightening by the Fed, providing some modest strength to the US Dollar and the USD/JPY pair. However, the immediate reaction is expected to be limited as traders await the upcoming key events: the FOMC decision on Wednesday and the BoJ meeting on Friday.

Diagram of USD/JPY: -

Economic Events: -

Date Event Impact Currency

4:15 (New Zealand) Visitor Arrivals YoY Low NZD

5:20 (Japan) BSI Large Manufacturing QoQ Low JPY

6:00 (Australia) Westpac Consumer Confidence Change High AUD

6:00 (Australia) Westpac Consumer Confidence Index High AUD

7:00 (Australia) NAB Business Confidence High AUD

11:30 (Germany) Harmonised Inflation Rate MoM Low EUR

11:30 (Germany) Harmonised Inflation Rate YoY Low EUR

11:30 (Germany) Inflation Rate MoM Medium EUR

11:30 (Germany) Inflation Rate YoY Medium EUR

11:30 (Germany) CPI High EUR

11:30 (United Kingdom) Average Earnings excl. Bonus (3Mo/Yr) Low GBP

11:30 (United Kingdom) Average Earnings incl. Bonus (3Mo/Yr) Medium GBP

11:30 (United Kingdom) Unemployment Rate High GBP

11:30 (United Kingdom) Claimant Count Change High GBP

11:30 (United Kingdom) Employment Change High GBP

11:30 (United Kingdom) HMRC Payrolls Change Low GBP

12:30 (Lithuania) Current Account Low EUR

12:30 (Spain) CPI High EUR

12:30 (Spain) Core Inflation Rate YoY Low EUR

12:30 (Spain) Harmonised Inflation Rate MoM Low EUR

12:30 (Spain) Harmonised Inflation Rate YoY Low EUR

12:30 (Spain) Inflation Rate MoM Low EUR

12:30 (Spain) Inflation Rate YoY Low EUR

13:30 (China) Total Social Financing Low CNY

13:30 (China) New Yuan Loans Low CNY

13:30 (China) M2 Money Supply YoY Low CNY

13:30 (China) Outstanding Loan Growth YoY Low CNY

14:10 (Spain) 3-Month Letras Auction Low EUR

14:30 (Euro Area) ZEW Economic Sentiment Index Medium EUR

14:30 (Germany) ZEW Economic Sentiment Index High EUR

14:30 (Germany) ZEW Current Conditions Low EUR

14:30 (United Kingdom) 10-Year Treasury Gilt Auction Low GBP

14:40 (Italy) 3-Year BTP Auction Low EUR

14:40 (Italy) 7-Year BTP Auction Low EUR

14:40 (Italy) 30-Year BTP Auction Low EUR

15:00 (Germany) 5-Year Bobl Auction Low EUR

15:15 (Euro Area) ECB Enria Speech Low EUR

15:30 (Latvia) Current Account Low EUR

15:30 (United States) NFIB Business Optimism Index Low USD

17:30 (Ecuador) Balance of Trade Low USD

18:00 (United States) Core Inflation Rate MoM Medium USD

18:00 (United States) Inflation Rate MoM High USD

18:00 (United States) Core Inflation Rate YoY High USD

18:00 (United States) Inflation Rate YoY High USD

18:00 (United States) CPI High USD

18:00 (United States) CPI s.a High USD

18:15 (Germany) Current Account Low EUR

18:25 (United States) Redbook YoY Low USD

19:30 (United Kingdom) BoE Gov Bailey Speech Medium GBP

20:30 (United Kingdom) BoE Dhingra Speech Low GBP

21:00 (United States) 52-Week Bill Auction Low USD

22:30 (United States) 30-Year Bond Auction Low USD

Buy Scenario: -

The USD/JPY currency pair has been trading within a narrow range between 139.89 (R1) and 139.48 (PIVOT) for the past three weeks, indicating a lack of clear direction and suggesting a potential increase in volatility. Traders are eagerly awaiting a catalyst that could break the current deadlock. Two significant events, namely today's release of the Consumer Price Index (CPI) report and the highly anticipated Federal Reserve interest rate decision on Wednesday, have the potential to provide the necessary impetus. Till we did not advise to buy in USD/JPY.

Sell Scenario: -

Currently, the USD/JPY pair is hovering around the midpoint at 139.60, indicating neutral momentum. Given the prevailing upward trend, buyers are likely to enter the market if the pair experiences a pullback towards the 139.48 (PIVOT) level, as they search for value opportunities. However, a failure to hold this level could open the door for a downward movement, potentially leading to a near-term decline towards 139.19 (S1).

In summary, the overall bias for the USD/JPY pair remains tilted to the upside, with the forthcoming news events on Tuesday and Wednesday expected to determine whether traders will take advantage of buying opportunities during pullbacks or chase the market's strength driven by significant developments. Till we did not advise to sell the position in USD/JPY.