Key Points:
- Technical Analysis of USD/JPY: Trading around 155.60; weakening bullish bias with potential further decline if key support levels are breached.
- JPY Appreciation Factors: Improved September risk sentiment and speculation on US Fed rate cuts.
The Japanese Yen (JPY) has seen a notable appreciation, driven primarily by improved risk sentiment and rising speculation regarding potential interest rate cuts by the US Federal Reserve (Fed) in September. This speculation has stemmed from various economic signals, including depreciating US Treasury yields, which have put considerable pressure on the US Dollar (USD).
Falling US Treasury Yields Weaken USD
US Treasury yields have also played a crucial role in this dynamic. The depreciation of these yields exerts downward pressure on the USD, making it less attractive than other currencies, including the JPY. This trend is underscored by the ongoing undermining of the USD/JPY pair. Investors remain vigilant. They are closely monitoring upcoming US employment data releases scheduled for Friday. These include Average Hourly Earnings and Nonfarm Payrolls. These reports will provide further insight into the US’s economic health and future policy direction.
Japan’s 10-Year Bond Yields Fall Below 1%
On the domestic front, Japanese economic data has presented a mixed picture. Japanese bond yields have recently pulled back, with the benchmark 10-year government bond yield falling below 1% for the first time in two weeks. Additionally, Japan’s real wages have declined for the 25th consecutive month as of April, a trend underscoring the ongoing challenges posed by domestic inflation outpacing wage growth.
DXY Struggles with 70% Chance of September Fed Rate Cut
The US Dollar Index (DXY) has faced challenges in the United States due to mixed economic data. This uncertainty has fueled speculations about potential interest rate cuts by the Fed. According to the CME FedWatch Tool, the probability of a Fed rate cut in September by at least 25 basis points has surged to nearly 70.0%, up from 47.5% just a week earlier.
USD/JPY at 155.60: Key Support Levels and RSI Insights
As of Thursday, the USD/JPY pair is trading around 155.60. Daily chart analysis indicates a weakening bullish bias, with the pair breaking below the lower boundary of a symmetrical triangle pattern. The 14-day Relative Strength Index (RSI) sits slightly below 50, signalling a potential for further decline. Key support levels include the psychological level of 156.00 and the 50-day Exponential Moving Average (EMA) at 154.69. A break below this level could lead to a throwback support region around 151.86. On the resistance side, a key barrier exists at the lower threshold of the symmetrical triangle. A return to this triangle could reinforce the bullish bias. The potential to test the upper boundary exists. It may break above the psychological barrier of 157.00. This would support a retest of 160.32, the highest level in over thirty years.
