Published on Jul 18, 2023

USD/JPY Traces Sluggish Yields: Mild Losses below 139.00 as on 18-07-2023.

USD/JPY Analysis

Key Points: -

The USD/JPY pair is hovering near its intraday low and continues to face pressure for the second consecutive day after rebounding from a two-month low.
Traders in Tokyo have been unable to generate significant momentum despite returning from a long weekend.
Market conditions are sluggish, and there are mixed concerns regarding the divergence between the Bank of Japan (BoJ) and the Federal Reserve (Fed), which contributes to uncertainty in the pricing of the Japanese Yen.
The cautious mood in the market, along with the retreat of the US Dollar, is attracting sellers as they await the release of US data.

Today's Scenario: -

The USD/JPY pair remains near its intraday low, hovering around 138.50 during early Tuesday morning in Europe. This indicates a continuation of the pair's decline after a corrective bounce from a two-month low on the previous Friday. Market conditions are sluggish, and the return of Japanese traders from a holiday has failed to inject volatility into the market. Traders are now awaiting the release of US Retail Sales and Industrial Production data for June, resulting in mixed sentiments.

The recent weakness in the risk-sensitive USD/JPY pair reflects the market's cautious optimism as concerns over US-China tensions recede following Washington's efforts to rebuild relations with Beijing through frequent visits. Additionally, mixed concerns surrounding the next moves of global central bankers, particularly with the anticipated Fed rate hike in July, are influencing traders of the USD/JPY pair.

It is noteworthy that policymakers at the Bank of Japan (BoJ) continue to advocate for maintaining the easy-money policy, despite market expectations of an exit from ultra-low interest rates and moderation of the Yield Curve Control (YCC) policy.

On another note, concerns raised by the hawkish tone of the Fed on Friday were short-lived as the US data from the previous day failed to support the optimism surrounding the world's largest economy, despite positive consumer-centric figures. The New York Empire State Manufacturing Index for July decreased to 1.1 from the previous reading of 6.6, falling short of market expectations of 0.0. Initially, this data did not inspire sellers of the US Dollar Index (DXY), but it eventually reversed Friday's recovery. However, the positive prints of the University of Michigan's Consumer Sentiment Index and consumer inflation expectations for July provided some support.

The market sentiment is currently sluggish, which is limiting immediate movements in the USD/JPY pair. Reflecting this sentiment, S&P500 Futures are trading near their highest level since April 2022, down 0.10% intraday around 4,565. The US 10-year and two-year Treasury bond yields are experiencing mild losses, hovering around 3.80% and 4.73% respectively. The US Dollar Index (DXY) remains under pressure due to cautious optimism and the impact of Monday's disappointing data, while commodities and currencies like the Antipodeans show modest gains.

Moving forward, the release of US Retail Sales data for June, expected to show a rise of 0.5% compared to the previous reading of 0.3%, will be crucial in determining the direction of the USD/JPY pair. Additionally, the US Industrial Production data for June, expected to decline by 0.1% compared to the previous reading of -0.2%, along with US-China headlines and bond market movements, will be important factors to watch as Japan returns from a long weekend.

Diagram of USD/JPY: -

Economic Events: -

Buy Scenario: -

if the price starts to rise, it may encounter resistance at 138.72, which is identified as an overlap resistance level. Additionally, the second resistance level is located at 140.92, representing another area of overlap resistance. These resistance levels could act as barriers where the price may face selling pressure, causing it to stall or reverse its upward movement.

It's important to note that these support and resistance levels are crucial reference points for traders as they assess potential buying and selling opportunities in the USD/JPY pair. Till we did not advise to buy in USD/JPY.

Sell Scenario: -

The USD/JPY currency pair is currently showing a bearish momentum after breaking below an ascending support line. This breakdown suggests that the price is likely to continue moving downwards, potentially targeting the first support level.

The first support level is located at 137.94 and is considered significant as it represents an area of overlap support and aligns with the 50% Fibonacci projection. This zone is important as it could provide a potential bounce for the price. If the support holds, the price may reverse its downward movement.

However, if the support level is breached, the price could further decline towards the second support level at 135.11. This level is also an overlap support but corresponds to the 61.80% Fibonacci retracement. It is another critical area where buying pressure may outweigh selling pressure, potentially leading to a reversal in the price. Till we did not advise to sell the position in USD/JPY.