The Japanese yen’s slide appears to be losing steam as US Federal Reserve rate hike expectations take a ‘U’-turn after dovish remarks from central bank officials. The market is now pricing in a 79% chance of a pause at the June 13-14 FOMC meeting, compared to 35% a week ago, after several Fed officials including the vice chair-designate pointed toward a ‘skip’ in June. “Skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming,” vice chair nominee Philip Jefferson said late last week. However, any decision to hold rates steady should not be viewed as the end of the tightening cycle, the vice chair nominee added. Fed Chair Powell last month left the door open for a pause at the June meeting given the tightening in credit conditions, but reiterated that the central bank would now make decisions “meeting by meeting”. USD/JPY Daily ChartMeanwhile, Japan’s Q1 GDP data and Econ Watchers Survey are due on Thursday, which could shed some light on the economy. Macro data have been underwhelming with the Economic Surprise Index for Japan at the lowest level since January. With Japan’s headline inflation showing signs of moderation and the Bank of Japan’s (BOJ) persistence with ultra-loose policy settings, there are very few monetary policy cues to push USD/JPY meaningfully in either direction as of now. For more discussion see “Making Sense of Japanese Yen’s Recent Slide: Is it the Start of a Renewed Leg Lower?”, published June 1.
USD/JPY: Holding Above a Key Cushion
USD/JPY has rebounded from quite strong converged support on the 89-period moving average and the lower edge of the Ichimoku cloud on the 240-minute charts. However, as the color-coded candlestick charts show, USD/JPY remains in a consolidation phase within the broader short-term bullish phase (see the 240-minute chart). The pair last week retreated from a stiff hurdle on the median line of a pitchfork channel from January (at about 141.30), roughly coinciding with the upper edge of a rising channel also from the start of the year. Last week’s high of 141.00 could continue to pose constraints on the latest rebound. On the downside, USD/JPY would need to drop below the mid-May low of 133.75 for the immediate upward pressure to fade. EUR/JPY Daily Chart EUR/JPY: Sideway price action could stretch a bit
The sharp drop in momentum even as EUR/JPY last week attempted to retest the early-May high of 151.60 is a sign that the cross could be due for an extended consolidation given the March-May rally. This follows a retreat from the upper edge of a rising channel from mid-2022 (see chart). There’s no threat to the broader uptrend unless EUR/JPY were to break below the 145.50-146.50 floor. In sum, EUR/JPY could be settling in a 146.00-152.00 range in the interim AUD/JPY Weekly Chart AUD/JPY: Struggles at a key ceiling AUD/JPY is once again testing the tough converged barrier on the 200-day moving average, coinciding with the February high of 93.00. Interestingly, momentum hasn’t picked up substantially to reflect the renewed strength that the cross showed last week. Nevertheless, the cross needs to clear the cap for the outlook to improve materially. An encouraging sign for bulls is that AUD/JPY hasn’t broken any support, keeping alive the possibility of an eventual break higher.