Published on Jun 20, 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.