USD/JPY gains ground despite weak Housing data from the US

On Wednesday, the USD/JPY gained more than 0.60% and managed to jump near 139.80 amid JPY’s weakness. Dovish comments from Bank of Japan’s Governor Kazuo Ueda weighed ion the Yen. The USD’s upside potential, however, is limited by the release of weak Housing data and dovish bets regarding the Federal Reserve's (Fed) future policy trajectory.

Investors assess Housing data from the US, all eyes on Japanese Trade Balance figures

The US Census Bureau at the Department of Commerce released soft Housing market data for June. Building Permits rose 1.44M but failed to live up to the expected 1.49M and came in lower than the previous 1.496M. Similarly, Housing Starts increased by 1.434M but below the 1.48M expected decelerating from the previous monthly figure of 1.559M.

As a reaction, due to the Housing market showing signs of weakness due to higher rates imposed by the Federal Reserve (Fed), investors now have more reasons to bet on less aggressive monetary policy. For the next July 26 meeting a 25 basis point (bps) hike is almost priced in but investors are confident that the Fed won’t hike for the rest of 2023.

That said, the US Treasury yields are decreasing across the board. The 2-year stands at 4.77%, the 5-year rate at 4.00%, and the 10-year yield retreated to 3.77%, making the USD lose interest.

On the Japanese side, Governor Kazuo Ueda put a stop to rumors about a Yield Control Curve policy change, signalling that he would keep the policy unchanged in the next meeting. Because inflation is beyond the bank's target, he stated, "Unless the premise is shifted, the whole story will remain unchanged." These remarks caused Japanese rates to fall, indicating that markets expect the BoJ to take a dovish position.

USD/JPY Levels to watch

The daily chart indicates a diminishing bearish momentum and a shift in favour of the bulls. The Relative Strength Index (RSI) is currently below its midline but exhibiting a positive slope, and the Moving Average Convergence Divergence (MACD) shows decreasing red bars, which suggests a strengthening bullish momentum.

In the broader context, the currency pair trades below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, implying that the overall outlook favours the USD. 

Resistance levels: 140.35, 141.00, 142.10 (20-day SMA).
Support levels: 138.40, 137.80, 137.00 (100 and 200-day SMA convergence).