Open an Account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open an Account
✖

USD/JPY: Difficult for Fed to abandon higher for longer with no new data for guidance

Article By: ,  Market Analyst
May 19, 2024 7:39 PM
  • The economic calendar is incredibly quiet this week
  • With no top tier data to consider, Fed members are likely to retain the higher for longer narrative regarding the US rates outlook
  • Higher US yields points to upside risks for USD/JPY

Fed to remain higher for longer narrative

US bond yields are pushing higher, retracing some of the ground ceded following last Wednesday’s inflation and retail sales reports. With no top tier economic data to navigate this week, Fed speak is likely to be more influential than usual. And given the Fed is data dependent when assessing the US interest rate outlook, with no new information to consider, it’s difficult to see their narrative shifting from it still being far too soon to consider rate cuts.

That points to upside risks for USD/JPY, especially if risk appetite holds up.

Too soon to stop buying USD dips

With US Treasury yields drifting higher as markets pare Fed rate cut bets, the bullish breakout in US two year note futures last week looks to have been a false one. I’ve been watching this indicator closely as a sustained topside break of 101*24 may increase downside pressure on the US dollar in the absence of a risk-off environment. Given the price has fallen back below this level, I’m reverting to buying dollar dips rather than selling rallies near-term.

That puts USD/JPY in the radar given its strong, positive correlation with US bond yields often seen for extended periods.  

USD/JPY threating downtrend

Having added over 200 pips from the lows hit last Wednesday, USD/JPY is now testing downtrend resistance dating back to the multi-decade highs above 160 set in April. With MACD crossing over from below on the four hourly timeframe and RSI threatening to break its downtrend, downside momentum looks to be ebbing, pointing to the potential for the price to start another run higher.

Should the downtrend give way, traders could buy the break with a stop loss order below the trendline for protection. The initial target would be horizontal resistance at 155.95. Should that go, the high of 156.80 set on May 14 would be in play. Above, there’s very little on the charts until 158.

With rhetoric from Japanese policymakers expressing displeasure on the yen’s level abating for the moment, the threat of intervention from the BOJ on behalf of the government looks limited unless the price runs rapidly higher without any fundamental explanation.

-- Written by David Scutt

Follow David on Twitter @scutty

 

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.

© FOREX.COM 2024