Analysis USD/JPY: bearish movement still far from a bottom
|USD/JPY Current Price: 106.94
- BOJ considered the risks of prolonged stimulus as inflation refuses to pick up.
- US Fed's Chair Powell will speak about monetary policy later in the day.
Mounting tensions between the US and Iran spurred risk aversion overnight, resulting in the Japanese Yen appreciating further. US President Trump announced “hard-hitting” new sanctions against Iran Monday, and Treasury Secretary Mnuchin indicated that this sanctions would “lock up literally billions of dollars of assets.” Iran's President Rouhani responded by saying the US decision displays Washington's desperation and will fail. In this scenario, equities fell, government debt appreciated and yields fell, while the USD/JPY pair fell to 106.77.
The Bank of Japan released the Minutes of its latest meeting, which showed that policymakers debated the need to be vigilant over the rising cost of prolonged monetary easing. Given the lack of inflationary pressures, policymakers need to consider the risk associated with ramping up stimulus. The country also released the Corporate Service Price for May, which rose at an annual pace fo 0.8%, below the expected 1.0%.
The US session will bring today the CB Consumer Confidence Index for June, foreseen at 132.0 vs. the previous 134.1. The country will also release April Housing Price Index, May New Home Sales and the Richmond Fed Manufacturing Index for June. Later in the day, the US Fed's Chair Powell is due to speak about the economic outlook and monetary policy in an event in New York.
The USD/JPY pair is bouncing from the mentioned low, but so far is unable to recover the 107.00 mark. The 4 hours chart shows that the pair accelerated its slump after failing to overcome a firmly bearish 20 SMA, this last extending its decline below the larger moving averages. The Momentum indicator holds within negative levels, lacking directional strength, while the RSI indicator is barely correcting oversold conditions, currently at 32, all of which keeps the risk skewed to the downside.
Support levels: 106.75 106.40 106.05
Resistance levels: 107.10 107.45 107.80
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