USD/JPY – 136.79
Although dollar’s erratic rise from Friday’s 2-week bottom at 135.58 to 136.97 in New York and intra-day break there suggests 1st leg of correction from July’s fresh 24-year peak at 139.39 has ended, near term overbought condition would prevent strong gain and yield decline, below 136.29 would head to 135.80/90 before bounce.
On the upside, only a daily close above 137.39 would indicate aforesaid correction ended and risk stronger gain to 137.80/90 later.
Data to be released on Wednesday
U.K. BRC shop price index, Germany Gfk consumer sentiment, France consumer confidence, Italy business confidence, consume confidence, Swiss investor sentiment.
U.S. MBA mortgage application, durable goods, durables ex-transport, durables ex-defense, goods trade balance, wholesale inventories, pending home sales and Fed interest rate decision.
USDJPY focus ahead of the Fed [Video]
(Giles Coghlan LLB, Lth, MA – HYCM)
The JPY tends to strengthen around the summer and you can see that bias play out in the USDJPY pair. Over the last 22 years, the USDJPY has fallen 14 times between July 27 and August 27. The average fall has been 1.06%.
The USD will be in key focus as the Fed meets tonight. The US July PMI Global Services print came in at 47 below minimum expectations last Friday and that puts growth very much in focus. Yes, the Fed is expected to hike by 75 bps – it could even be 100bps, but much of that is already priced into the USD. Will the Fed start to hint at concerns over slowing growth? Will the Fed hint at a coming pause in its rate hiking cycle? If it does that could be the catalyst that sinks the USDJPY in line with its seasonal weakness trend.
Major Trade Risks: If the Fed continues to stress tackling inflation, even at the risk of stifling growth, then the USD could still strengthen and that could change this outlook.