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Japanese Yen Talking Points
USD/JPY appears to be tracking recent gains in US Treasury yields as it falls from the year’s high (136.71) and as more Fed officials are trying to clear the October 1998 high (136.89) , the exchange rate may try to break through the increased willingness to implement restrictive policies.
USD/JPY Rate to Track Treasury Yields Ahead of US PCE Report
USD/JPY retraces losses following the Fed rate decision, continues to hold above the 50-day SMA (130.79) and is likely to continue the positive slope of the moving average in 2022 as St. Louis Fed President James Bullard tracks it The man who voted on the Federal Open Market Committee (FOMC) revealed that he was “a proponent of proposing a quantitative tightening (QT) schedule in the United States.”
At an event hosted by UBS, Bullard warned that “we have passed the popularity of asset purchases” as the central bank ramps up its efforts to fight inflation, and whether the FOMC will continue to adjust its outlook next Sexual guidance remains to be seen The interest rate decision on July 27 is the central bank’s planned “prudent strategy” after the initial phase of QT.
Until then, a divergent path between the FOMC and the Bank of Japan (BoJ) should keep USD/JPY at Governor Haruhiko Kuroda and continue quantitative and qualitative easing (QQE) with a yield curve control (YCC) program in the case of. , and updates to the U.S. core consumer spending (PCE) price index, the Fed’s preferred inflation gauge, should have little impact on the monetary policy outlook, as they remain well above the 2% target.
Core PCE is expected to tighten for the second month in a row, expected to be 4.8% in April, compared with 4.9% y/y in April, and signs of firming prices could lead the FOMC to do so, forcing U.S. households and businesses to Respond to tightening policy as the committee insists that “continued rate hikes would be appropriate.”
In turn, USD/JPY is likely to continue tracking the positive slope of the 50-day SMA (130.79) as it traded to a new yearly high (136.71) in June, but the retail sentiment slope appears to remain unchanged. The pair has been net short for most of 2022.
The IG Client Sentiment report shows that 27.52% of traders are currently net long USD/JPY, with a ratio of short to long traders at 2.63 to 1.
The number of net longs increased by 12.97% from yesterday and 2.96% from last week, while the number of net shorts decreased by 0.48% from yesterday and 6.99% from last week. The increase in net long positions comes as USD/JPY started a series of higher highs and lows, while the decline in the net short rate helped ease crowded behavior as 24.06% of traders were net long last week.
Against this backdrop, USD/JPY may continue to decline from the yearly high (136.71) as more Fed officials show greater willingness to implement hawkish policies, while the exchange rate may try to extend the 1998 October high (136.71). 89) Overcome in the event of a recovery in U.S. yields).
USD/JPY Rate Daily Chart
Source: Trade Perspectives
USD/JPY is struggling to test the October 1998 high (136.89) as recent gains have failed to push the Relative Strength Index (RSI) into overbought territory, but a retracement from the year’s high (136.71) is likely A correction to the broader trend as it continues to hold above the 50-day SMA (130.79).
A return to the 135.30 area (50% expansion) could propel USD/JPY to the October 1998 high (136.89), a breakout/close of 137.40 (61.8% expansion) to 137.80 (316.8% expansion) since September 1998 high points (139.91) ).
However, lacking the momentum to sustain above the 135.30 area (50% expansion), USD/JPY could retreat to a Fibonacci overlap around 132.20 (78.6% retracement) to 133.20 (38, 2% expansion) A break below the 50-day SMA (130.79) puts the 129.40 (261.8% expansion) area back on the rada
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
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