Japanese yen hotspots
USD / JPY Eyes low in July, US yields under pressure from NFP report
USD/JPY extends last week’s series of lower ups and downs as the US ISM Manufacturing survey unexpectedly falls in July and the exchange rate may fall further in the coming days as the 10-year Treasury returns approach the lowest level in July (1.13%).
An update to the U.S. Production Survey may be maintained Federal Open Market Committee (FOMC) as the index shrinks from 60.6 in June to 59.5, the lowest level since the beginning of the year, and signs of a weaker-than-expected recovery could further dampen US performance as it encourages the Fed to maintain its current monetary policy stance.
As a result, the risks of US events may affect the USD / JPY before the farm payroll (NFP) as several Fed officials have to speak in the coming days and more central bank Governor Lael Brainard, a permanent voting member of the Federal Open Market Committee (FOMC), calls foremployment is still a long way off, ”said at the annual meeting of the Aspen Economic Strategy Group.
In turn, weak data output from the US economy could drag on the USD / JPY as the FOMC does not want to change course, but a further decline in the exchange rate could lead to a recent change in the retail mood, as it did earlier this year.
IG customer feelings report shows 50.75% of traders are now net length USD / JPY traders with a long and short relationship standing 1.03 to 1.
The number of traders in net length is 6.48% higher than yesterday and 16.67% higher than last week, while the number of short traders is 7.36% higher than yesterday and 12.28% lower than last week. The rise in net long-term interest rates has contributed to a change in retail sentiment, with 45.73% of traders trading in USD / JPY last week, while the decline in the short net position may be due to profit-taking as the exchange rate prolongs last week’s lower ups and downs.
However, a further decline in the USD / JPY could contribute to a change in retail sentiment, such as the behavior and exchange rate observed earlier this year. seems to be on track to test July lows (109.06) as U.S. yields come under pressure.
USD / JPY daily schedule
Source: Trading View
- USD / JPY approached pre-pandemic level a “golden cross” materialized in March, where the formation of the bull flag developed in the same period as the exchange rate traded at the new year ‘s highest level (110.97).
- Relative Strength Index (RSI) showed similar dynamics as the figure rose above 70 for the first time after February 2020, but the withdrawal from the overbought territory has undermined this year’s upward trend, pushing the USD / JPY below the 50-day SMA for the first time in a short time after January (110.07).
- Nevertheless, the USD / JPY reversed before its lowest level in March (106.37) to largely rule out the risk of head and shoulder formation, and the exchange rate rose back above the moving average in June (111.12).
- A similar scenario took shape in july like USD / JPY traded to the highest level of the year (111.66), but lack of momentum to maintain 109.40 (50% repeat) to 110.00 (78.6% expansion) can steer the exchange rate in the direction of Fibonacci overlap from about 108.00 (23.6% expansion) to 108.40 (100% expansion), with the next region of interest being about 107.20 (61.8% retracement).
– Written by David Song, currency strategist
Follow me on Twitter at @DavidJSong