- Summary:
- The USDJPY pair was down for the third successive session on Monday as confidence built up that a Fed rate cut is coming. What could change?
The yen extended its gains against the US dollar on Monday, with the USDJPY pair trading at 160.70, down by 0.04 percent at the time of writing. The pair stayed on the descending trajectory for the third session in a row, but still above the important psychological support mark of 160.00. The dollar finds itself in a precarious position as more traders bet on Fed interest rate cuts from September.
Fed Chairman Jerome Powell stated last week that there was evidence that inflation was headed downward, and the market picked up his comments as dovish. Also, the June FOMC Meeting Minutes indicated that most FOMC members would be willing to vote for rate cuts if there was strong evidence that inflation is sustainably headed to the Fed’s target of 2 percent.
Powell will be testifying before the congress on Tuesday, and his speech will provide key pointers on the central bank’s monetary policy going forward. That will likely keep USDJPY traders from making aggressive bets in the intervening period. Also, Japan will release its Producer Price Index thereafter, and the figures will give insights into whether the country is succeeding in its struggle against disinflation. The BoJ will be hoping that the figure comes out higher than the forecast 2.9 percent to ease the pressure on it to intervene in the forex market for the second time in as many months.
Technical analysis
The momentum on USDJPY calls for further downside, as per the RSI indicator. The sellers will likely have their way if resistance persists at 160.72, and the first support will likely come at 160.55. Extended control by the sellers will likely see the next support established at 160.40. Alternatively, the upside will be likely if the currency pair breaks above 160.72. However, the upward movement will likely encounter the first resistance at 160.87. Furthermore, a break above that mark will invalidate the downside movement and strengthen the upside momentum to potentially test 161.03.
