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USD/JPY bears in the market and eye break of support structure

  • USD/JPY is in the hands of the bears that eye a break of trendline support.
  • Below trendline support, the 138.20s  and then the 137.70s will be exposed. 

 USD/JPY touched a six-month high of 139 in the Asian session on Tuesday whereby talks over a debt-ceiling deal in the US risk running into a brick wall while investors get set for key economic events this week. At the time of writing, USD/JPY is flat at 0% with the price traveling between 138.23 and a high of 138.91.

Global equities slid on Tuesday as talks over the US debt ceiling continued without resolution. We also have yields on one-month US Treasury bills running into a record high. Rising yields and a stronger US Dollar pressured the Yen that has been pressured by the Bank of Japan's ongoing reluctance to tighten monetary policy further.

Meanwhile, President Joe Biden and House Speaker Kevin McCarthy could not reach an agreement on Monday over the debt ceiling with just 10 days before a possible default. President Biden prefers a clean raise of the debt limit, one without cuts. Republicans want to cut spending now. 

On the preferred approach to raising the debt ceiling, three-quarters of Democrats want the limit raised first without cuts. On the other hand, two-thirds of Republicans said they want cuts tied to it. Independents were split, but a slight plurality – 48% to 45% – said they want to see cuts. Nevertheless, both sides stressed the need to avoid default with a bipartisan deal and said they would continue to talk.

As for the Federal Reserve, on Wednesday, the Federal Reserve Open Market Committee will publish its minutes from the central bankers’ meeting three weeks ago. The market will expect that the Fed has dropped hints over the timeline of rate increases.

Just this week, Minneapolis Federal Reserve President Neel Kashkari said on Monday that it was a "close call" as to whether he would vote to hike again or pause at next month's meeting, and St. Louis Fed President James Bullard said another 50 basis points of hikes might be required. Consequently, there are fewer expectations for US rate cuts from July towards November or December, sending ten-year and two-year US yields to highs not seen since March and weighing on the Yen. Besides the minutes, the Fed’s preferred inflation measure, personal-consumption expenditure index (PCE) will also be released on Friday where markets are expècting a 4.6% year-over-year increase, while the Fed is looking to bring that figure below its target of 2%.

USDJPY H1 chart

USD/JPY is testing the trendline support that guards the 138.20s  and then the 137.70s.

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Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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