Fundamental analysis of USD/JPY
The USD/JPY pair hit a weekly high near 139.500 in the early hours of Wednesday's European meeting. The pair is strengthening amid concerns about the dovish stance of the Bank of Japan (BOJ), masking falling stock yields and rumors that the US Fed will pause rate hikes.
Mixed news from China and a bullish stock market are drawing market attention. Concerns about the country's economic recovery intensified after China's Ministry of Industry reported weak demand and falling incomes, and confirmed disappointing second quarter gross domestic product (GDP) data. Combined with China's role as a major buyer of oil, this will lead to lower commodity prices. At the same time, U.S. banks are expecting to reap big profits if interest rates rise to counter fears of slowing economic growth and test the U.S. dollar bull market.
Bank of Japan official Kazuo Ueda said the economy is still a long way from reaching its 2% growth target, casting a shadow over the BOJ's support strategy. Japan's financial crisis is exacerbated by the vulnerabilities associated with the resignation of top leader Fumio Kishida and the negativity reigning in Tokyo's modern big business. These factors are driving the Japanese yen lower and shaping the upside bias of the USD/JPY pair.
The Fed will prioritize a 25bp rate hike in July, which is the end of this cycle. Nevertheless, strong data from the June meeting of the US retail regulators supports the likelihood that the Fed will continue to raise interest rates during the grace period. After recovering from a 15-month low of 99.55, speculation has the US Dollar Index (DXY) nearing 100.15. The U.S. real estate sector is expected to perform well in the U.S., with construction approvals and starts expected in June. Despite disappointing retail sales and industrial production data, this indicates optimism in the real estate sector and a possible soft landing for the US economy.
Ahead of Friday's economic growth data, Japanese bears are anticipating a possible adjustment to the Bank of Japan's yield containment strategy amid rising cost pressures. Future US housing starts figures should weigh on USD/JPY traders as the market awaits urgent data on business expansion in Japan on Friday.
Technical Analysis and Scenarios:
Based on these levels, the USD/JPY pair is currently trading near the key resistance level at 139.410 represented by the upper Bollinger Bands. The wide price range and the upward direction of the Bollinger Bands suggest the presence of volatility with a bullish bias. However, the fact that the price is declining in the upper range of the indicator may indicate a possible reversal or correction.
Main scenario (BUY)
Recommended entry level: 140,000.
Take Profit: 140.740.
Stop loss: 139.500.
Alternative scenario (SELL)
Recommended entry level: 138.680.
Take Profit: 137.770.
Stop loss: 139.500.