USD/JPY Rises to 145.91 Amid Fed Rate Cut Speculation and Japan’s Trade Deficit
During the European trading session, the USD/JPY currency pair showed positive momentum, climbing to an intra-day high of 145.91, and maintaining its bid around the 145.87 level.
The pair’s rise was supported by signals from the U.S. Federal Reserve regarding a potential interest rate cut in September. This speculation, combined with Japan’s disappointing trade deficit data, applied downward pressure on the Japanese Yen (JPY).
Looking forward, traders are focused on upcoming U.S. economic data, including Weekly Initial Jobless Claims and Existing Home Sales. These reports are crucial as they provide insights into the health of the U.S. economy and can influence short-term market movements, offering potential trading opportunities.
US Dollar Strengthens Amid Rate Cut Expectations
In recent days, the U.S. dollar has regained strength, ending a four-day losing streak. The Federal Reserve’s minutes, released on Wednesday, indicated that most officials are inclined to consider a rate cut at the September meeting, assuming inflation continues to ease. Since July 2023, the Fed has held its benchmark interest rate at 5.3%, with market expectations now leaning towards a potential cut of up to 100 basis points by the end of the year.
In today’s #DailyUpdate:
📉 #EURUSD falls after a 4-day high.
📈 #USDJPY rises as the USD recovers.
📉 #GBPUSD falls after a 5-day high.Read more 👉 https://t.co/E84H2fVhQT
RW: Forex trading involves significant risk. pic.twitter.com/sQFFZ4rANS
— Trading.com (@tradingdotcom) August 22, 2024
While the U.S. dollar has gained some traction from a slight recovery in Treasury yields, the anticipation of a Fed rate cut may limit the upside potential for the USD/JPY pair in the near term. The possibility of reduced interest rates could weigh on the dollar, making it less attractive relative to other currencies.
Japan’s Mixed Economic Data and BoJ Rate Hike Prospects
On the Japanese side, economic data and expectations surrounding the Bank of Japan (BoJ) are offering some support to the USD/JPY pair. The Jibun Bank Manufacturing PMI for August rose slightly to 49.5, though it fell short of the expected 49.8. Meanwhile, the Services PMI improved to 54.0, indicating some resilience in Japan’s service sector. Despite this, the overall economic outlook remains mixed, particularly in light of Japan’s record trade deficit, which has further weakened the Yen.
Economists are also speculating that the BoJ could raise interest rates by the end of the year. A Reuters poll suggests a median forecast of a 0.50% interest rate by year-end, marking a 25 basis point increase. Market participants are keenly watching for any hawkish signals from BoJ Governor Kazuo Ueda’s upcoming speech on Friday, which could provide a lift to the JPY against the USD.
Despite these expectations, Japan’s significant trade deficit continues to exert pressure on the Yen, likely keeping the USD/JPY pair stronger in the near term.
Today the USDJPY followed a weak upward trend in the morning session, hitting a high of 145.64 before GMT 02:00.
Looking at the 1-hour chart of the USDJPY (as of GMT 05:10 on August 22), the middle line of the Bollinger Band is trending down, showing that the market is if… pic.twitter.com/cryjEvXXFq— FXON (@fxon_ltd) August 22, 2024
Technical Analysis: USD/JPY Testing Key Levels
The USD/JPY pair is currently trading at 145.486, showing a modest increase. The pair is nearing a critical pivot point at 146.127, which will be crucial in determining its next move. Failure to hold above this level could increase downside risks, with immediate support levels at 144.332, 143.211, and 141.787. On the upside, a break above the pivot could lead to resistance at 147.324, 149.365, and ultimately 150.900.
The Relative Strength Index (RSI) stands at 41, indicating a neutral to slightly bearish sentiment. Additionally, the 50-day Exponential Moving Average (EMA) at 146.951 suggests that there’s potential for further downside correction if current momentum does not strengthen.
Conclusion: Consider selling below 146.161, targeting 143.998, with a stop loss at 147.340.
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