Daily Analysis For USD/JPY   20-06-2023

Daily Analysis For USD/JPY 20-06-2023

USD/JPY Analysis


Key Points: -


·       USD/JPY experiences a pullback from its highest level since November 2022 but maintains a four-day upward trend, although it appears to be consolidating near multi-day resistance levels.


·       The initial surge in yields faces challenges as mixed concerns about the US-China relationship and the Federal Reserve (Fed) create uncertainty in the market.


·       Japanese Finance Minister Suzuki suggests a stable fundamental situation but refrains from making specific comments on the foreign exchange market.


·       Yen traders may find interest in Japan's Industrial Production data and US housing data, but the primary focus remains on concerns related to the Fed's policies and actions.


Today's Scenario: -


USD/JPY retraces its intraday gains from a seven-month high, pulling back from a multi-day peak of 142.25 to 142.00 as of the current time. The Yen pair initially benefited from the US Dollar's upward movement and a positive start to the week, driven by rising Treasury bond yields, which pushed it to a yearly high before experiencing a retreat due to mixed catalysts.


The US Dollar Index (DXY) continues its three-day uptrend, hovering around 102.60, despite some resistance encountered by the Treasury bond yields. The 10-year and two-year Treasury bond yields are currently trading near 3.82% and 4.75% respectively, following consecutive days of gains.


It is worth noting that the rise in yields at the beginning of the week was supported by expectations of a more hawkish stance from the Federal Reserve (Fed) and concerns regarding US-China tensions. However, the recent rate cut by the People's Bank of China (PBoC) and comments from Japan's Finance Minister, Shunichi Suzuki, have impacted market sentiment, Treasury bond yields, and the USD/JPY pair.


The PBoC's decision to implement a 10 basis points rate cut aligns with market expectations, aiming to stimulate growth amidst concerns over China's economic recovery, given its status as the largest industrial player globally.


On the other hand, Finance Minister Suzuki stated earlier today that foreign exchange rates should reflect stable fundamentals. While refraining from specific comments on FX levels, he emphasized the importance of market stability. It is noteworthy that Japan's Industry Minister, Nishimura, has also expressed support for stability in the FX markets.


Furthermore, the Fed's recent monetary policy reports to the US Congress, along with hawkish comments from Fed officials, have been favorable for US Dollar bulls. The Fed's policy report for Congress acknowledged that inflation in the US is above target, and the labor market remains tight. Notably, several Fed officials, including Richmond Fed President Thomas Barkin, Chicago Fed President Austan Goolsbee, and Federal Reserve Governor Christopher Waller, have expressed a somewhat hawkish tone recently.


While there are hopes of improved US-China relations following meetings between US Secretary of State Antony Blinken, China President Xi Jinping, and top diplomat Wang Yi, concerns regarding Taiwan continue to pose challenges to fostering amicable relations.


Against this backdrop, S&P500 Futures are showing slight losses, while yields continue their upward movement.


Looking ahead, USD/JPY is expected to maintain its firmness, with key factors to watch including second-tier US housing data, Japan's Industrial Production for April, and updates from both the Fed and the Bank of Japan (BoJ), which will provide clearer guidance for future market direction.


Diagram of USD/JPY: -


Economic Events: -


Date      Event                                                                                            Impact        Currency

 02:30   (New Zealand) Westpac Consumer Confidence                               Low NZD

 06:45   (China) Loan Prime Rate 1Y                                                       Medium    CNY

 06:45   (China) Loan Prime Rate 5Y                                                       Medium    CNY

 07:00   (Australia) RBA Meeting Minutes                                      High  AUD

 07:05   (Australia) RBA Kent Speech                                                       Medium   AUD

 09:00   (Australia) RBA Bullock Speech                                                  Medium   AUD

 10:00   (Japan) Industrial Production MoM                                     Low  JPY

 10:00   (Japan) Industrial Production YoY                                       Low  JPY

 10:00   (Japan) Capacity Utilization MoM                                      Low  JPY

 10:30   (Estonia) PPI YoY                                                                  Low     EUR

 10:30   (Estonia) PPI MoM                                                                             Low     EUR

 10:30   (Finland) Unemployment Rate                                                          Low   EUR

 11:30   (Germany) PPI MoM                                                                   Medium    EUR

 11:30   (Germany) PPI YoY                                                                             Low     EUR

 11:30   (Switzerland) Balance of Trade                                                  Medium   CHF

 13:30   (Euro Area) Current Account                                                              Low   EUR

 13:30   (Euro Area) Current Account s.a                                                        Low   EUR

 13:30   (Greece) Current Account                                                    Low   EUR

 13:30   (Euro Area) ECB Enria Speech                                                             Low   EUR

 14:30   (Euro Area) Construction Output YoY                                               Low  EUR

 14:30   (Italy) Current Account                                                                      Low     EUR

 14:30   (United Kingdom) 5-Year Treasury Gilt Auction                                Low GBP

 15:00   (Germany) 2-Year Schatz Auction                                       Low  EUR

 15:30   (Portugal) PPI YoY                                                                               Low     EUR

 15:30   (Portugal) PPI MoM                                                                           Low     EUR

 15:30   (Luxembourg) Unemployment Rate                                     Low  EUR

 15:30   (Slovakia) Unemployment Rate                                                         Low   EUR

 16:00   (United States) Fed Bullard Speech                               Medium USD

 17:15   (Euro Area) ECB McCaul Speech                                                       Low    EUR

 18:00   (United States) Housing Starts                                                  Medium    USD

 18:00   (United States) Building Permits                                                      High   USD

 18:00   (United States) Housing Starts MoM                                        Medium  USD

 18:00   (United States) Building Permits MoM                                     Medium  USD

 19:00   (Slovenia) Unemployment Rate                                                        Low    EUR

 19:15   (Euro Area) ECB McCaul Speech                                                       Low    EUR

 20:30   (New Zealand) Global Dairy Trade Price Index                                  Low NZD

 21:00   (United States) 3-Month Bill Auction                                                Low  USD

 21:00   (United States) 6-Month Bill Auction                                                Low  USD

 21:15   (United States) Fed Williams Speech                                          Medium USD

 22:30   (El Salvador) Balance of Trade                                                            Low   USD

 22:40   (Euro Area) ECB Guindos Speech                                        High EUR

Buy Scenario: -


To maintain its upward momentum, the USD/JPY pair needs to stay above the pivot level at 141.81 and aim for the First Major Resistance Level (R1) at 142.17. If the pair breaks above the morning high of 142.25, it would indicate a bullish session for USD/JPY. However, the breakout will also require support from Fed Chair Powell.


If the rally continues, the bulls are likely to test the Second Major Resistance Level (R2) at 142.37, followed by resistance at 142.50. The Third Major Resistance Level (R3) is located at 142.73. Till we did not advise to buy in USD/JPY.


Sell Scenario: -


On the downside, if the pair falls below the pivot level, the First Major Support Level (S1) at 141.61 would come into play. However, unless there is a significant sell-off triggered by Fed Chair Powell, the USD/JPY pair is expected to stay above the 141 level. The Second Major Support Level (S2) at 141.24 should provide some support against further decline. The Third Major Support Level (S3) is positioned at 141.05. Till we did not advise to sell the position in USD/JPY.


Support and Resistance Level: -

Support          Resistance  

S1 141.61   -  R1 142.17

S2 141.24  -   R2 142.37

S3 141.05  -   R3 142.73


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