According to recent trading, the Japanese yen has resumed its downward trend. It is currently trying to breach its lowest levels in several years against the rest of the other major currencies, as capital outflows from Japan continue unabated. In the case of the USD/JPY currency pair, it moved towards the 144.17 resistance level, the highest for the currency pair since November 2022 before settling around 143.85 at the time of writing the analysis.
Overall, the growing threats of Japanese Deputy Finance Minister intervention in the forex market fell on deaf ears, and the signs that the Bank of Japan may raise its notorious yield ceiling next month had little effect either. Traders are probably right that the chances of direct intervention in the forex market are low, which is reflected in the weak implied volatility of the yen.
However, the possibility of a BoJ action next month is becoming increasingly realistic as core inflation has topped 4%, and markets seem to be sleeping on this risk given the slow decline in Japanese yields. In this sense, inflation statistics from Tokyo on Friday will be crucial for JPY crosses, as they can lead to a reality check. Meanwhile, the US dollar is trading slightly lower, without any clear catalyst behind a pullback. The dollar's lackluster performance over the past month has been somewhat remarkable, considering that this was a period when markets reset the Fed's interest rate path upwards, reducing bets on any rate cuts this year.
Even stranger, the Euro was very strong in June, despite signs that the Eurozone economy is losing steam at an uncomfortable pace. The European Central Bank raising interest rates and sending more telegraphic money has certainly helped boost the single European currency, but in the end, capital is not flowing into ailing economies.
Alternatively, the moves over the past month may be better explained through a risk sentiment lens. For today, there is a barrage of data released from the US which includes durable goods orders, new home sales and measures of consumer confidence. Finally, the ECB Forum on Central Banking will kick off and feature several keynote speakers in the coming days, although this event is usually more academic in nature. As stock markets continued to rally strongly led by technology stocks and implied volatility collapsed, an aura of heightened risk spilled over into the FX market, keeping the US dollar under pressure but benefiting from risk-sensitive currencies such as the pound sterling.
Forecasts of the US dollar against the Japanese yen today:
- The general trend of the USD/JPY currency pair is still bullish.
- Recent strong gains are sufficient to push technical indicators towards strong overbought levels.
- I still prefer selling the currency pair from those peaks and higher than them instead of taking the risk of buying.
There can be a sudden and rapid intervention from Japan to stop the collapse of the Japanese yen in the markets, which brings quick profit-taking sales. Currently, the closest resistance levels for the currency pair are 144.20 and 145.00, respectively.
According to the performance on the daily chart below, there will be no reversal of the bullish trend for the USD/JPY pair without moving below the psychological level of 140.00. Today, the currency pair will be affected by the statements of the policy officials of the Central Bank of Japan and the US Federal Reserve Bank.
Ready to trade our daily Forex forecast? Here’s a list of some of the best online forex trading platforms to check out.
