Forex Markets Pause Amid Central Bank Meetings and Yen Pressure

In the early trading sessions on Monday, the U.S. dollar and major currencies appeared stagnant. This inertia was largely attributed to a combination of factors, including a national holiday in Japan and the anticipation of central bank meetings scheduled for the week.

The most critical risk event of the week is the Bank of Japan's meeting on Friday. Market participants are closely monitoring any signals that the BOJ might be accelerating its move away from the ultra-loose policy, following Governor Ueda's recent remarks that led to higher yields. This week, several central banks are making key decisions, including the U.S. Federal Reserve on Wednesday.

The yen's exchange rate with the U.S. dollar remained stable due to the national holiday in Japan. However, over the past week, the yen has depreciated by 1.3%, bringing its losses for 2023 to over 11%.

Japanese real wages have declined for the 16th consecutive month in July, as salaries failed to keep pace with rising prices. This trend is closely observed in global financial markets, as the Bank of Japan considers sustainable wage increases a crucial factor in deciding when and how to reduce their ultra-loose monetary stimulus.

In July, inflation-adjusted real wages fell by 2.5% compared to the previous year. Meanwhile, the consumer price index, which excludes owners' equivalent rent, remained at 3.9%. Although some major Japanese companies reported a nearly 4% increase in wages this year, Prime Minister Fumio Kishida has been pushing for further wage increases to counter rising inflation. However, recent data from earlier this week revealed that in July, Japanese household spending experienced its most substantial decline in nearly two and a half years, dropping by 5.0% compared to the same month in the previous year.

On the other hand, recent policy support from Beijing and positive Chinese economic data have bolstered confidence in Asia, indicating that the worst may be behind the world's second-largest economy. Nonetheless, apprehensions about challenges in the real estate sector persist, raising worries of potential repercussions in the financial system.

In the currency markets, the dollar index was slightly lower. Most investors believe that economic growth disparities and yield differentials will keep the U.S. dollar strong.

U.S. Treasury yields have been gradually rising, with the two-year yield surpassing the 5% mark and increasing by 25 basis points this month. This rise has been driven by increased government spending and the expectation that the Federal Reserve will maintain high interest rates to combat persistent inflation, as indicated by last week's retail sales data.

Market expectations lean towards the Fed taking a break from rate hikes. Futures markets are currently pricing in a low 3% probability of the Fed raising interest rates at its upcoming meeting. Some analysts anticipate a substantial 80 basis point rate cut next year. As a result, it is anticipated that the yen will remain subject to significant downward pressure unless Japanese authorities take action and the Bank of Japan alters its monetary policy stance. There is a possibility of a slight strengthening of the yen, driven by positive developments in the Chinese economy.

Data for Technical Analysis (1H) CFD USD/JPY

Resistance : 147.80, 147.82, 147.86

Support : 147.72, 147.70, 147.66

1H Outlook  

Source: Investing.com

Buy/Long 1 If the support at the price range 147.64 – 147.72 is touched, but the support at 147.72 cannot be broken, the TP may be set around 147.81 and the SL around 147.60, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 147.80 – 147.88, TP may be set around 147.94 and SL around 147.68, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 147.80 – 147.88 is touched, but the resistance at 147.80 cannot be broken, the TP may be set around 147.71 and the SL around 147.92, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 147.64 – 147.72, TP may be set around 147.60 and SL around 147.84, or up to the risk appetite.       

Pivot Points Sep 18, 2023 02:40AM GMT

Sources: Investing 1, Investing 2