Published on Jun 19, 2023

Daily Analysis For USD/JPY 19-06-2023

USD/JPY Analysis

Key Points: -

· USD/JPY reached a new year-to-date high on Monday but failed to sustain further buying momentum.

· The divergence in monetary policy between the Federal Reserve (Fed) and the Bank of Japan (BoJ) is considered a significant factor supporting the USD/JPY pair.

· The diverging stance, with the Fed leaning towards tightening while the BoJ maintains its accommodative policy, provides support for the US Dollar against the Japanese Yen.

· However, the Japanese Yen benefits from its safe-haven status in times of overall market risk aversion, which limits further upside potential for USD/JPY.

· The prevailing softer risk sentiment acts as a driver for investors seeking the safety of the Japanese Yen and acts as a barrier to additional gains in the pair.

Today's Scenario: -

The USD/JPY pair is currently in a consolidation phase with a bullish bias on Monday, trading within a narrow range below the 142.00 level. This marks the pair's highest level since November 2022, which was reached during the Asian session.

The Japanese Yen (JPY) continues to face downward pressure due to the Bank of Japan's (BoJ) decision last Friday to maintain its accommodative policy settings in order to support the fragile domestic economy. The BoJ kept its short-term interest rate target at -0.1% and made no changes to its yield curve control policy. The central bank also maintained its view that inflation will slow later this year, indicating its intention to remain dovish amidst global uncertainties. This supportive stance from the BoJ acts as a tailwind for the USD/JPY pair at the start of the new week.

On the other hand, the US Dollar (USD) is showing some strength for the second consecutive day, building on a modest rebound from a one-month low reached on Friday. This is attributed to the Federal Reserve's (Fed) hawkish outlook. Although the Fed decided to pause its rate-hiking cycle last week, it signaled the possibility of raising borrowing costs by up to 50 basis points by the end of this year. This supportive outlook for the USD contributes to the USD/JPY pair's strength, albeit lacking strong bullish conviction.

However, concerns have been raised regarding the Fed's room for further rate hikes due to recent softer US macroeconomic data. Market participants are increasingly convinced that the Fed is nearing the end of its tightening cycle, which prevents the USD bulls from making aggressive moves. Additionally, a generally cautious sentiment in equity markets limits the JPY's losses as a safe-haven currency, thereby capping the upside potential for the USD/JPY pair, at least for now. Nevertheless, the overall fundamental backdrop suggests that the path of least resistance for the pair is towards the upside.

As a result, any significant corrective decline is likely to be viewed as a buying opportunity and is expected to find support. The market's attention now turns to Fed Chair Jerome Powell's two-day congressional testimony on Wednesday and Thursday, which will be closely watched for hints regarding future rate hikes. This testimony will play a crucial role in influencing USD price dynamics and provide meaningful momentum to the USD/JPY pair. Traders will also be keeping an eye on the release of flash US PMI data on Friday.

Diagram of USD/JPY: -

Economic Events: -

Date Event Impact Currency

04:00 (New Zealand) Services NZ PSI Low NZD

04:00 (New Zealand) Composite NZ PCI Low NZD

05:30 (United States) Juneteenth None USD

09:05 (Japan) 52-Week Bill Auction Low JPY

13:30 (Australia) Myfxbook AUDUSD Sentiment Medium AUD

13:30 (Switzerland) Myfxbook USDCHF Sentiment Medium CHF

13:30 (Japan) Myfxbook USDJPY Sentiment Medium JPY

13:30 (European Union) Myfxbook EURUSD Sentiment Medium EUR

13:30 (United Kingdom) Myfxbook GBPUSD Sentiment Medium GBP

13:30 (Canada) Myfxbook USDCAD Sentiment Medium CAD

13:30 (New Zealand) Myfxbook NZDUSD Sentiment Medium NZD

13:30 (Euro Area) ECB Survey of Monetary Analysts Low EUR

15:00 (Germany) 12-Month Bubill Auction Low EUR

16:00 (Portugal) Current Account Low EUR

16:30 (Euro Area) ECB Lane Speech Low EUR

17:10 (Euro Area) ECB Schnabel Speech Low EUR

18:00 (Canada) PPI YoY Low CAD

18:00 (Canada) PPI MoM Low CAD

18:00 (Canada) Raw Materials Prices YoY Low CAD

18:00 (Canada) Raw Materials Prices MoM Low CAD

18:30 (France) 3-Month BTF Auction Low EUR

18:30 (France) 12-Month BTF Auction Low EUR

18:30 (France) 6-Month BTF Auction Low EUR

19:30 (United States) NAHB Housing Market Index Medium USD

23:30 (Euro Area) ECB Guindos Speech High EUR

Buy Scenario: -

The USD/JPY pair ended the week on a positive note, but it encountered strong resistance, as seen on the daily chart. The pair has been trading within a rising wedge pattern, and it closed near the upper trendline of the pattern around 141.86. If the pair fails to break above this resistance and surpass the 142.00 level, it could face selling pressure. Additionally, the possibility of Japanese authorities intervening in the foreign exchange markets with their language could weigh on the pair and potentially trigger a correction.

Considering that the USD/JPY's overall trend is upward, the first key resistance level to watch is 142.00. A successful break above that level would expose the high reached on November 22 at 142.24, and further gains could target the 143.00 level. Till we did not advise to buy in USD/JPY.

Sell Scenario: -

On the downside, if the pair retreats, it could find support at the previous high from May 29, now turned into a support level at 140.92. Further downside movement might see the pair testing the 20-day Exponential Moving Average (EMA) at 139.40.

Please note that these technical levels are provided as a guide and should be considered alongside other factors and market developments that may impact the USD/JPY pair. Till we did not advise to sell the position in USD/JPY.