USD/JPY holds tight in quiet markets following a propped up stocks on Wall Street

  • USD/JPY steady in Tokyo with traders returning to subdued markets. 
  • The pair is at risk of extending its decline, as the pair remains below all of its moving averages.

As Japan comes back into the mix, USD/JPY is currently trading at 107.89, in a tight 107.82/96 range in Asia, following a subdued performance in the pair from overnight. USD/JPY stuck to a 30 pips range between 107.80 and 108.10. The DXY was drifting from 96.75 to a high of 96.97 despite a slide in the US 2-year treasury yields that travelled from 1.85% to 1.83%, while 10-year yields lost ground from 2.14% to 2.09%. 

Wall Street’s benchmarks were enjoying earnings season, with Citigroup performing and beating analyst’s expectations which enabled stocks to close at record highs again – weighing on the yen in the latter part of the session. 

Meanwhile, expectations of a rate cut from the Federal Reserve at the end of July, with the markets continuing to price in around 30bp of easing at the 31 July meeting is keeping the bulls in check. However, details from June PPI and CPI data showed that core inflation likely inched up 0.2% m/m, lifting the annual measure from 1.6% to 1.7% y/y which was a five-month high. As for US data overnight, the New York Empire State Manufacturing Index climbed 12.9 points in July to 4.3. 

Despite the recent rebound, we don’t expect core inflation to reach the Fed’s 2% target until 2020. In the meantime, the Fed is likely to ease in July as it remains more concerned about global factors and still-sluggish inflation.

USD/JPY levels

Valeria Bednarik, the Chief analyst at FXStreet explained that the USD/JPY pair topped for the day at 108.10, briefly surpassing a mild-bearish 20 DMA before returning sub-108.00, maintaining the risk skewed to the downside:

“Shorter term, and according to the 4 hours chart, the pair is at risk of extending its decline, as the pair remains below all of its moving averages, with the 100 SMA offering an immediate resistance around 108.00 and the 20 SMA crossing below the 200 SMA, in the 108.20 price zone. The Momentum indicator retreated sharply after testing its mid-line, while the RSI indicator keeps grinding lower at around 39. July’s monthly low comes at 107.52, with a break below the level favoring a test of 106.77, the multi-month low established late June.”

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