USDJPY: fed hawks and new developments!
Updated
USD/JPY eyes 141.00 as upbeat US households’ spending supports hawkish Fed stance
Fundamental technical analysis:
The market price line is being consistently followed by the 34 EMA, resulting in a stable uptrend over a period of time. The RSI has returned to a safe and stable level of 60.5. To minimize the FVG zones, there is a forecast of a slight sideways trend before the news is released.
Financial market analysis:
The US Dollar (USD) slightly bounced back after a brief dip in profit-taking during the day. This was due to the US Bureau of Economic Analysis (BEA) reporting an increase in the headline PCE Price Index by 0.4% in April, compared to the previous month's 0.1%. Moreover, the yearly rate accelerated to 4.4%, exceeding expectations for a fall to 3.9% from March's 4.2%. Further details showed that the Core PCE Price Index, which is the Fed's preferred inflation gauge, increased to 4.7% from 4.6%, beating consensus forecasts.
These results reinforced the market's belief that the Federal Reserve (Fed) will keep interest rates at higher levels, which supports the Greenback. This, in turn, acts as a tailwind for the USD/JPY pair. Currently, the markets are predicting over a 50% chance of another 25 bps lift-off at the June FOMC meeting. This is supported by a rise in the US Treasury bond yields, which widens the US-Japan rate differential and encourages the flow of funds away from the Japanese Yen (JPY).
Fundamental technical analysis:
The market price line is being consistently followed by the 34 EMA, resulting in a stable uptrend over a period of time. The RSI has returned to a safe and stable level of 60.5. To minimize the FVG zones, there is a forecast of a slight sideways trend before the news is released.
Financial market analysis:
The US Dollar (USD) slightly bounced back after a brief dip in profit-taking during the day. This was due to the US Bureau of Economic Analysis (BEA) reporting an increase in the headline PCE Price Index by 0.4% in April, compared to the previous month's 0.1%. Moreover, the yearly rate accelerated to 4.4%, exceeding expectations for a fall to 3.9% from March's 4.2%. Further details showed that the Core PCE Price Index, which is the Fed's preferred inflation gauge, increased to 4.7% from 4.6%, beating consensus forecasts.
These results reinforced the market's belief that the Federal Reserve (Fed) will keep interest rates at higher levels, which supports the Greenback. This, in turn, acts as a tailwind for the USD/JPY pair. Currently, the markets are predicting over a 50% chance of another 25 bps lift-off at the June FOMC meeting. This is supported by a rise in the US Treasury bond yields, which widens the US-Japan rate differential and encourages the flow of funds away from the Japanese Yen (JPY).
Note
Stocks rise on US debt ceiling deal but China dragsAsian shares and Wall Street futures rose on Monday as a weekend deal by U.S. President Joe Biden and House Speaker Kevin McCarthy to suspend the government's debt ceiling provided relief for investors although China worries capped sentiment.
Europe is set to open slightly higher, with pan-regional Euro Stoxx 50 futures up 0.2%. S&P 500 futures rose 0.3% while Nasdaq futures firmed 0.5%.
After weeks of negotiations, congressional Republican McCarthy and Biden agreed on Saturday to avert an economically destabilising default by suspending the $31.4 trillion debt ceiling until 2025. The deal now has to clear a narrowly divided Congress before the United States runs out of money to pay its debts in early June.
Trade active
World Bank expert: Africa's debt sustainability prospects still 'unclear'Andrew Dapalin, chief economist for the World Bank's Africa region, said on Monday that the prospects for debt sustainability in Africa remain "unclear" as low growth and high inflation pose a challenge to the stability of many of the continent's economies.
One of the biggest concerns, Dabalin said, is stagflation. According to the World Bank, growth is expected to reach 3.1 percent in 2023, while inflation will be in double digits in large areas of the continent.
The bank indicated that what exacerbates concerns is that about half of sub-Saharan African countries are defaulting on their obligations or are at high risk of default.
"We don't expect the number to rise above the current number," Dabalin said in an interview with Reuters, but warned that changing global economic conditions still posed a risk to those expectations.
Trade active
Yen firms on policymaker meeting, dollar up after debt deal- The yen strengthened on Tuesday on news of a meeting of Japan's finance ministry and central bank, while elsewhere the dollar rose to a two-month high against a basket of its peers after the U.S. debt ceiling deal.
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