Despite stopping the path of US interest rate hikes, the contrast is still strong between the policy of the soft Japanese central bank and the US Federal Reserve. It is still tightening its policy to contain US inflation, which allowed the bulls to push the USD/JPY currency pair towards the resistance level of 141.93. This is the highest for the currency pair in seven months, and is stable near it at the beginning of this week's trading.
Every year, the dollar currency pair rose against the yen, USD/JPY, now, to trade several levels above the 100-hour moving average line. As a result, it appears that the currency pair is about to enter the overbought levels of the 14-hour RSI.
According to the economic analysis, the USD/JPY currency pair is trading affected by the results of the latest economic data. On Friday, the Bank of Japan voted to keep the benchmark interest rate unchanged at -0.1%, in line with expectations. Prior to this, Japanese imports for May exceeded the expected change of -10.3% with a change of -9.9% (YoY), while exports for the period exceeded the expected change (YoY) of -0.8% with a change of 0.6. %. Machinery orders for April also came in better than expected, while total merchandise trade for May fell short of estimates.
In the US, the Michigan Preliminary Consumer Confidence Index for June beat the expected reading of 60 with a reading of 63.9. Inflation expectations for this period were different from the expected rate of 3.1%, by 3%. Earlier in the same week, US Retail Sales for May beat expectations of -0.1% with a change of 0.3%, while the Retail Sales Watch Group beat the expected change of 0% with a change of 0.2%. Retail sales excluding automobiles matched the expected change of 0.1%.
This week US Central Bank Governor Jerome Powell will be in the spotlight on Capitol Hill a week after the Federal Reserve halted its most aggressive tightening campaign in decades, as investors watch for clues as to whether central bankers are indeed leaning toward more rate hikes. The chairman of the Federal Reserve will deliver the central bank's biannual monetary policy report to the House of Representatives on Wednesday and the Senate the next day.
Separately, three Fed candidates face potentially contentious confirmation hearings.
Overall, Powell is likely to face questions about the Fed's decision to take a breather after 10 consecutive increases in US interest rates as he assesses how the economy is responding to rising borrowing costs and recent banking pressures. The decision was baffling to many, as officials' latest median forecast shows the record rate rising to 5.6% by the end of the year, compared to their March forecast of 5.1%.
Democrats may praise the Fed for taking a break and remind Powell that excessive rate hikes could put millions of Americans out of work. At the same time, Republicans can convey the message that inflation remains too high, causing pain for families and small business owners. Both sides may pressure Powell to explain how the central bank plans to improve financial oversight after several regional banks failed this year. On Wednesday, Fed governors Philip Jefferson and Lisa Cook and nominee Adriana Kugler, now the US representative to the World Bank, will face members of the Senate Banking Committee as part of the confirmation process.
Technical analysis of the dollar pair against the yen:
- On the near term, and according to the performance on the hourly chart, it appears that the USD/JPY is trading within a bullish channel formation.
- This indicates a significant short-term bullish bias in market sentiment.
- Therefore, the bulls will look to extend the current rise towards 142.785 or higher to the resistance 143.641.
- On the other hand, the bears will target profits at around 140.822 or below at 139.965 support.
On the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of an ascending channel. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will target long-term profits at around 144.799 or higher at the resistance 148.337. On the other hand, bears will be looking to pounce on a pullback at around 138.768 or below at 135.195 support.
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