- The USD/JPY bounces while the divergence between the Fed and the Boj continues to weigh on the safe and secure refuge.
- Retail sales in the US exceed estimates, increasing 0.6% compared to 0.1% predicted, reducing the prospects for a rate cut by the Fed in September.
- The USD/JPY rises to the psychological level of 149.00, quoting about 148.50 at the time of writing.
The US dollar (USD) is winning a new impulse against Japanese Yen (JPY), with the divergence between central banks being a key factor for the USD/JPY. As the torque approaches the level of psychological resistance in 149.00, the expectations that the Federal Reserve (FED) will maintain higher interest rates are supporting the dollar on Thursday.
At the time of writing, the USD/JPY is quoting 0.47% higher in the day, positioning the torque to recover after a 0.72% drop in the previous session. Retail sales data in the US published on Thursday and the comments of several Fed officials can provide additional address for price action.
June retail sales figures exceeded estimates, increasing 0.6% in June, above the estimates of analysts of an increase of 0.1% and bouncing sharply after a contraction of 0.9% in May. Since consumer spending represents a significant part of the Gross Domestic Product (GDP) of the US, these data offer a valuable vision of the strength of the economy, which influences the expectations of interest rates.
In addition, the speeches of the members of the Fed scheduled throughout the day can provide greater clarity about the policy perspective of the Central Bank. With inflation data even indicating high price pressures, several policy responsible have expressed concern that the increase in tariffs could further complicate FED efforts to return inflation to their 2%target.
While the Fed maintains its policy rate in the range of 4.25%–4.50%, the Bank of Japan (BOJ) continues to maintain interest rates at 0.5%, citing the possible economic pressure of hardening politics too soon. This contrast in monetary policy and performance differentials remain a key factor that supports the continuous strength of the USD/JPY.
According to the CME Fedwatch tool, the markets are currently valuing a 54.3% probability of a rate cut by the Fed in September, with a probability of 46.2% that the rates remain unchanged until October.
Technical analysis: USD/JPY recovers above 148.50
The USD/JPY is approaching a critical technical point, with prices near the level of psychological resistance of 149.00.
The Fibonacci recoil level of 50% of the fall from January to April serves as additional resistance, a break from which the door could open towards the 150.00 mark, a level that has previously served as a battlefield for bulls and bears.
A decisive rupture above this level could trigger a new bullish impulse, racing the path to the 61.8% Fibonacci level in 151.62, and potentially extending the rebound around 154.82, the 78.6% setback zone that is aligned with broader bullish objectives.
With the 38.2% Fibonacci level providing support in 147.14, a greater decrease could lead to USD/JPY to test the simple mobile average (SMA) of 50 days in 145.14 and the level of retreat of 23.6% in 144.37.
Technically, the trend is still constructive, with the 10 -day SMA (147.04) maintaining above the 50 -day SMA, reinforcing the short -term bullish control. Meanwhile, the relative force index (RSI) in 64 approaches the overcompra territory, but still leaves room for more profits.
These levels are crucial, since a break or rejection of resistance will probably define the next management phase for the USD/JPY.
USD/JPY DAILY GRAPH
US interest rates – Frequently asked questions
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
