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The initial half witnessed a prevailing trend of dollar selling
resulting in a temporary drop of the USD/JPY to the mid-150 range.
“In today’s New York foreign exchange market, the initial half witnessed a prevailing trend of dollar selling, resulting in a temporary drop of the USD/JPY to the mid-150 range”
The announcement of higher-than-expected initial jobless claims in the U.S., signaling a softening in the U.S. labor market, prompted a decline in U.S. Treasury yields, intensifying the selling pressure on the dollar. Simultaneously, amid a temporary sharp decline in crude oil prices to the mid-$72 range, the USD/JPY experienced a momentary breach below the 21-day moving average, reaching approximately 150.45.
Despite some buying activity in the latter half, the persistent strength of the yen continued to exert downward pressure on the USD/JPY. Notably, cross-yen pairs, including EUR/JPY and GBP/JPY, faced significant declines. The ease in the previously robust U.S. stock market also appeared to enhance the attractiveness of the yen. Furthermore, caution prevailed in the market following the CEO of Walmart, the world’s largest retail company, warning of the potential manifestation of deflation in the United States in the coming months.
However, while a softening U.S. economy favors yen long positions, recent statements from the Bank of Japan (BOJ) indicate that accommodative policies will persist until the inflation outlook stabilizes, thereby limiting the potential for yen appreciation.
The EUR/USD briefly ascended to around 1.0895, testing the 1.09 level. However, sell orders were observed around the 1.09 level in response to the rapid ascent in recent days.
From a technical chart perspective, the Eurodollar’s rebound suggests the possibility of surpassing the late-August high of 1.0945. While the Eurodollar has demonstrated a significant recovery since Tuesday, the weekly Moving Average Convergence Divergence (MACD) indicates a Golden Cross, suggesting further upside potential.
Conversely, this upward movement is likely to be a self-contained rebound, with a low probability of surpassing the resistance at 1.1065.
The Pound Sterling against the U.S. Dollar (GBP/USD) experienced a pause in the previous day’s decline. It briefly rose to the mid-1.24 range, reaching around 1.2440, even breaching the 200-day moving average. However, this level is serving as resistance.
The anticipation of a rate cut by the Bank of England next year, following the release of the UK Consumer Price Index (CPI), is exerting downward pressure on the pound. Speculations suggest that the Bank of England’s rate hike impact, reflected in borrowing costs, might lead to an increase in unemployment rates and a decrease in job vacancies, potentially causing UK inflation to fall within the 2-3% range by mid-2024.
However, the risk of an upward deviation in wage growth poses a potential challenge to this forecast. Since wage growth tends to lag behind inflation, if inflation further decelerates and real wage growth turns positive, wage increases are expected to follow, albeit gradually.
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