USD/JPY: Weaker below 106.50, focus on T-yields ahead of Powell
USD/JPY trades weaker below the 106.50 level, tracking the negative S&P 500 futures and a cautious sentiment on the Asian equities, as attention shifts from the FOMC minutes to the Fed's Powell speech for fresh direction.
1. Technical Overview
Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair maintains the neutral stance, trading below the 38.2% retracement of its latest daily decline at around 106.65:
"In the 4 hours chart, the pair has spent the day trapped between the 20 and 100 SMA, with the largest maintaining its downward slope around the current level. Technical indicators in the mentioned chart hover just above their midlines, lacking directional strength. The 23.6% retracement of the same slide comes at 106.05, providing a relevant support, as a break below it should trigger a more relevant slide."
USD/JPY PRICE SENTIMENT
USD/JPY BULLISH PERCENTAGE INDEX
USD/JPY Pivot points
USD/JPY trading positions
2. Fundamental Overview
US stock markets were firm into the close overnight in anticipation, or the hope, of a rate cut as soon as September following a set of minutes that had something for everyone. This enabled USD/JPY to drift higher.
USD/JPY has been cruising to the upside since mid-month lows and that spike to test the 107 handle. The Dollar maintains a bullish bias and the yen is floundering, unable to gain upside traction the absence of panic-mode markets. We are indeed in a market lull and until there is some fresh confirmation of sentiment, one way or the other, there is no direction in the pair over the medium term. However, we now enter the remaining days of the week where there could be a gust of wind to kick up some dust from the eurozone PMIs and, not least, the Jackson Hole.
The Eurozone PMIs have the potential to really stir up a risk-off scene in markets should they come in markedly lower than expected, reminding markets of the potential for a global recession.
"We look for Germany's manufacturing PMI to fall another 1pt lower in August to 42.2 (mkt 43.0), which would be a new post-GFC low, as the trough during the Eurozone crisis was 43.0 in July 2012 (the month of Draghi's "whatever it takes" moment)," analysts at TD Securities warned.
"The services sector in general should hold up better, as it's less exposed to the downside from global trade tensions. We look for the French services PMI to slip to 51.8 (mkt 52.5). We also have the ECB minutes at 12:30pm BST today, which may give us some further colour around the ECB's policy discussions at last month's meeting. However, in the July Q&A, Draghi did say that the Governing Council did not discuss rate cuts or other specifics (size of rate cut, PSPP limits) at that meeting, so we're unlikely to get as much detail as we would like."
Powell to perturb markets unintentionally?
As for the Jackson Hole, Federal Reserve chairman, Powell, could be a major catalyst for markets. From the minutes overnight, we now know that there was a bit more disagreement among FOMC members than the two dissents suggested - But what we don't know is what side of the fence Powell is on. Should he rinse and repeat that the Fed only cut as in a "midcycle adjustment", expecting the consumer, jobs and the US economy to continue to grow, then the markets might respond in kind and turn risk-off, in anticipation of an imported recession which should be supportive of the Yen and weigh on US stocks - many to the despair of President Trump.
USDJPY FUNDAMENTALS TODAY
3. Latest News & Analysis
THEMES AFFECTING THE USD/JPY
SPECIAL YEARLY USDJPY FORECAST
2018 saw contradicting forces eventually balancing each other and returning Dollar/Yen close to its starting line for the year. The robust US economy, Fed hawkishness, the detente around North Korea and rising bond yields supported the pair. Fears about international trade, a global downturn, Brexit, and hiccups in stock markets kept the pair depressed.
Influential Institutions & People for the USD/JPY
The US Dollar Japanese Yen can be seriously affected by news or the decisions taken by two main central banks:
The Bank of Japan is the central bank of Japan and it's a juridical person established based on the Bank of Japan Act, nor being a government agency either a private corporation. The most important missions of the BOJ are the following: to issue and manage banknotes, to implement monetary policy and to ensure stability of the financial system. Almost all of the decisions are taken by the Policy Board, formed by a bunch of members working to provide currency and monetary control and setting the next moves that the central bank will take.
On the other
Haruhiko Kuroda was nominated, by Prime Minister Shinzo Abe, as Governor of the Bank of Japan in March 2013. He had previously worked as President of the Asian Development Bank for 8 years. As the head of the BOJ, he has a major influence over the Japanese Yen. His words are usually followed by traders in order to find any clue of next possible trend in the currency.
Jerome Powell took office as chairman of the Board of Governors of the Federal Reserve System in February 2018, for a four-year term ending in February 2022. His term as a member of the Board of Governors will expire January 31, 2028. Born in Washington D.C., he received a bachelor’s degree in politics from Princeton University in 1975 and earned a law degree from Georgetown University in 1979. Powell served as an assistant secretary and as undersecretary of the Treasury under President George H.W. Bush. He also worked as a lawyer and investment banker in New York City. From 1997 through 2005, Powell was a partner at The Carlyle Group.
BOJ NEWS & ANALYSIS
FED NEWS & ANALYSIS
The USD/JPY (or US Dollar Japanese Yen) currency pair belongs to the group of 'Majors', a way to mention the most important pairs in the world. This group also includes the following currency pairs: EUR/USD, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD. Japanese Yen has a low interest rate and is normally used in carry trades. This is the reason why is one of the most trades currencies worldwide. In this pair the US Dollar is the base currency and the Japanese Yen is the counter currency. The pair represents American (from United States of America) and Japanese economies.
Trading this currency pair is also known as trading the "ninja" or the "gopher", although this last name is more frequently used when reffered to the GBP/JPY currency pair. The US Dollar Japanese Yen usually has a positive correlation with the following two pairs: USD/CHF and USD/CAD. The nature of this correlation is dued to the fact that both currency pairs also use the US Dollar as the base currency. The value of the pair tends to be affected when the two main central banks of each country, the Bank of Japan (BoJ) and the Federal Reserve Bank (Fed), face serious interest rate differential.
The GBP/USD (or Pound Dollar) currency pair belongs to the group of 'Majors', a way to mention the most important pairs worldwide. This group also includes the following currency pairs: EUR/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The pair is also called 'The Cable', reffering to the first Transatlantic cable that was crossing the Atlantic Ocean in order to connect Great Britain with the United States of America. This term was originated in the mid-19th century and it makes GBP/USD one of the oldest currency pairs in the world.
The popularity of the Pound Dollar is due to the fact that represents two strong economies: British and American (from United States of America). The Cable is a widely observed and traded currency pair where the Pound is the base currency and the US Dollar is the counter currency. After the result of the Brexit referendum, where the majority of the British voted to abandon the European Union, GBP/USD has been suffering some turbulence in the Forex market as a consequence of the associated risks of leaving the single market.
The EUR/USD (or Euro Dollar) currency pair is one of the 'Majors', or most important pairs in the world. This group also includes GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The Euro Dollar gathers two main economies: the European and American (from United States of America) ones. This is a widely traded currency pair where the Euro is the base currency and the US Dollar is the counter currency. Since this pair consists of more than half of all the trading volume worldwide in the Forex Market, it is almost impossible for a gap to appear.
Normally, the EUR/USD is very quiet during the Asian session because economic data that affects the fundamentals of those currencies is released in either the European or U.S. session. Once traders in Europe get to their desks a flurry of activity hits the tape as they start filling customer orders and jockey for positions. At noon activity slows down as traders step out for lunch and then picks back up again as the U.S. comes online.