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The USDJPY pair continued to exhibit upward momentum
reclaiming the 143 yen level.
“In the current market scenario, the USD/JPY pair continues to demonstrate upward momentum, recapturing the 143 yen level”
The prevailing trend of a stronger US dollar remains intact, providing solid support to the USD/JPY pair. This support is further reinforced by recent interventions by the Bank of Japan and the subdued movement of yen interest rates, even after implementing the more flexible approach to Yield Curve Control (YCC).
Despite today’s release of weaker-than-expected economic indicators in the US, the US dollar exhibits resilience. Market sentiment is uplifted by the optimistic outlook of a soft landing for the US economy, avoiding recession and concluding the Federal Reserve’s rate hike cycle. As the foreign exchange market’s focus shifts towards the global economic trajectory, the dominant sentiment favoring a stronger US dollar remains unwavering.
All eyes are now on the USD/JPY pair’s potential return to the ascending trend observed in early July, as it maintains movements above the 21-day moving average. Notably, the substantial target of 145 yen is under serious consideration for the near term.
Conversely, the EUR/USD pair persists in its downward trajectory, briefly dipping to the mid-1.09 dollar level. The breach below the 21-day moving average during today’s decline signals that investors may target the 100-day moving average around 1.0910 dollars as the immediate downside objective.
Regarding the Eurozone’s economic indicators, today’s announcement revealed an unemployment rate of 6.4%, maintaining the lowest level since the previous month. This figure fell short of market expectations. Analysts point out that sustained high employment levels in the Eurozone may incline the European Central Bank (ECB) towards considering additional rate hikes. This recent unemployment rate is seen as reinforcing the ECB’s hawkish stance.
The ECB faces challenges due to persistent subdued core inflation, despite surging wage growth. Until this situation is effectively addressed, the possibility of an additional rate hike during the September policy meeting cannot be entirely dismissed.
Meanwhile, the GBP/USD pair extends its downward slide, reaching the mid-1.27 dollar level. The breach below the anticipated strong support at 1.28 dollars has nullified any indications of the reversal observed last week. The focus now centers on whether the pair will test the Fibonacci 38.2% retracement level around the lower 1.26 dollar range.
Anticipation is high for this week’s Monetary Policy Committee (MPC) meeting of the Bank of England (BoE), with widespread expectations for a rate hike. However, the likelihood of a substantial rate hike has diminished, as expectations now lean towards a more modest 0.25% increase.
Given such expectations, some analysts suggest that a bullish reaction for the pound following the MPC’s decision could be attributed to the market’s anticipation of the UK economy avoiding a recession and the Bank of England displaying a more hawkish outlook compared to the Federal Reserve and the ECB. While the latter two central banks recently hinted at nearing their rate peak, the most favorable outcome for pound bulls would be the Bank of England offering positive growth projections while signaling a hawkish stance.
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