Stealth intervention causes wild swings in USD/JPY; focus stays on Middle East and next US CPI
USD:
The US dollar weakened across the board yesterday following interventions from both Japan and South Korea. Throw into the mix month-end flows and you get noisy and volatile price action. The moves had nothing to do with the Fed or economic data.
Looking ahead, the focus will remain on the US-Iran developments and on the next US CPI report, as that could decide whether the Fed hikes in September or not.
The situation in the Middle East has barely changed, although Trump’s rhetoric seems to have softened a bit. Nevertheless, until we get a clear de-escalation, inflation risks will remain skewed to the upside.
JPY:
On the JPY side, the currency appreciated massively yesterday following a stealth intervention. The moves were also likely exacerbated by a rare South Korea dollar-selling intervention. Throw into the mix month-end flows and you get a very noisy and volatile price action.
Almost half of the gains were already erased as USD/JPY buyers thanked the Japanese officials for giving them much better prices. Without a change in the fundamentals, the interventions will continue to be just clearing events to rebuild positions at better levels. The trend is unlikely to change without a dovish repricing in Fed interest rate expectations or a faster BoJ tightening pace.
On the monetary policy side, the BoJ held interest rates unchanged today as widely expected with Takata (who’s the most hawkish member) dissenting in favour of a rate hike. The statement was largely unchanged with no hawkish signals. The near-term inflation forecast was revised downward, which doesn’t point to a heightened pace for rate increases.
BoJ Governor Ueda didn’t offer any clear policy signal, but he mentioned that they could speed up the pace of rate hikes if financial conditions become too easy. That’s certainly not a problem at the moment as bond yields continue to hover around cycle highs, while the Nikkei is down 13% from all-time highs. The market pricing remained largely unchanged with 67% chance of a hike in October.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPYdropped all the way back to the major upward trendline around the 158.50 level after Japan’s intervention. The buyers didn’t think twice and leant on the trendline with a defined risk below it to position for a rally into new cycle highs with a much better risk to reward setup. The sellers will need a break below the trendline to open the door for new lows, with the 155.00 handle as the first target.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, the price is trading right around the major 160.50 resistance zone. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop back into the trendline. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new cycle highs.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will look for a break to extend the rally into new highs, while the sellers will continue to pile in around the resistance to target the trendline and a potential breakout. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we conclude the week with the US Q2 Employment Cost Index. Traders will also keep monitoring US-Iran developments.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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