- USD/JPY holding firm in the Tokyo opening hour as dollar picks up the ceasefire bid.
- U.S. yields supporting following a rally in US stocks and market risk apatite.
USD/JPY continued its Asian session rally overnight to around 108.50, up 0.6% on the day. As for US yields, the 10-year yields ranged between 2.00% and 2.05%, about 2bp higher net. The 2-year treasury yields held at around 1.78% versus 1.75%. This all came, of course, on the back of the trade ceasefire on the sidelines of the G20 meeting from over the weekend.
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Wall Street rallies on ceasefire news and dialling down of Fed cut notions
The dollar caught a bid considering the positive implications for global demand and, indeed, that the Federal Reserve could well be less pressured to cut rates as soon as this month around; After all, the Fed was hardly dovish with its economic projections las tome around. Gross Domestic Demand and Unemployment were revised higher while the long-run estimates of growth and Unemployment were unchanged. Core Inflation was revised downward, but only modestly – That’s neutral on the projections, even perhaps mildly hawkish – that was NOT dovish.
Meanwhile, traders will look to the nonfarm payrolls this week for further signs that the economy is robust, following today’s better than expected manufacturing data. Powell referenced the weak May jobs report last Federal Open Market Committee presser around in which he noted only 75,000 jobs were added during the month. He said that the Fed typically requires three to six months’ worth of data to get a sense of the overall trend.
“The US manufacturing ISM survey for June encouragingly fell less than expected – to 51.7 from 52.1 – thanks to firmer production and employment sub-indices, but the key forward-looking new orders sub index stalled to a 3 ½ year low of 50.0. Markit’s manufacturing PMI was revised a touch higher to 50.6 from a preliminary estimate of 50.1,” analysts a Westpac explained. Meanwhile, the Atlanta Fed Q2 GDPNow forecast was trimmed to a 1.47% growth pace.
USD/JPY levels
Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair has partially lost its strength upward but, given that it is consolidating near daily highs, the upside remains favored:
“In the 4 hours chart, the 20 SMA keeps advancing and nearing the 100 SMA, both below the current level, while the pair nears the 200 SMA, which converges with a relevant high at 108.67, an immediate resistance. Technical indicators in the mentioned time-frame have lost their strength but turned flat near daily highs, the RSI currently in overbought territory at 71. The bullish potential could be reverted on a break below 107.95, the 61.8% retracement of the latest daily slump.”
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