Amid profit-taking and new bearish pressure, the USD/JPY pair was pushed to the 108.60 support level before settling around the 108.76 level at the time of writing. The major pairs and the Forex market in general are bracing for today's reaction to testimony by US Federal Reserve Chairman Jerome Powell. Yesterday, Powell confirmed that the US economic recovery from the coronavirus pandemic has progressed more quickly than expected, but the central bank does not intend to back down from the support efforts.
In testimony before Congress on Monday, Powell said that although the recovery appears to be strengthening, there are still many pockets of weakness in the US economy. At its meeting last week, the Fed kept the benchmark interest rate at a record low, from 0% to 0.25%. Although it raised his economic outlook significantly, he continued to indicate that the interest rate will remain the same until 2023, thus giving a boost to the financial markets.
On Tuesday, Powell and Treasury Secretary Janet Yellen will testify before the House committee, then testify on Wednesday before the Senate Banking Committee in oversight sessions mandated by Congress when it passed the relief bill last year.
Existing US home sales slowed last month as rising prices and a scarcity of homes for sale kept some potential buyers on the sidelines. Accordingly, the National Association of Realtors said February's existing home sales fell 6.6% from January to a seasonal average of 6.22 million units year-on-year. Sales were up 9.1% compared to February last year, before the pandemic overturned the economy and temporarily suspended home sales last spring.
The harsh winter weather across most of the US was likely a factor in the sales slowdown, which marked the first monthly drop in sales in two months. However, the recent spike in mortgage rates was not, as February sales largely reflect contracts signed weeks before interest rates hiked.
On a regional basis, sales decreased in the Northeast, Midwest and South, but increased in the West. However, home prices continued to rise, driven by high-end home sales. The report showed that the median home price in the United States was $313,000 in February, up 15.8% from the previous year.
The overheating housing market left the number of properties available for sale at record low levels, which contributed to the sharp increases in home prices.
At the end of February, the inventory of unsold homes stood at 1.03 million properties for sale, down 29.5% from the previous year, a record low. At the current pace of sales, home inventory at the end of February represents a two-month supply, down from 3.1 months of supply a year ago.
The US housing market has witnessed a strong recovery since last summer after dropping sharply in the spring when the coronavirus broke out. Sales jumped last year to the highest level since 2006, at the height of the housing boom.
Technical analysis of the pair:
The USD/JPY pair is now neutral, and stability above the 109.25 resistance would support a bullish performance and prepare for a move to the psychological resistance of 110.00 to confirm the bullish outlook. On the downside, according to the performance on the daily chart, a test of the 107.85 support level confirms the strength of the bearish correction for the currency pair, and thus the preparation for testing stronger support levels. Increased investor anxiety may be in favor of the JPY's gains.
In addition to the extent of risk appetite, the currency pair will be affected by the announcement of US current account,s new US home sales and the reaction from the testimony of US Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen.