USD/JPY: Difficult for Fed to abandon higher for longer with no new data for guidance

The economic calendar is incredibly quiet this week
With no top tier data to consider, Fed members are likely to retain the higher for longer narrative regarding the US rates outlook
Higher US yields points to upside risks for USD/JPY

Fed to remain higher for longer narrative

US bond yields are pushing higher, retracing some of the ground ceded following last Wednesday’s inflation and retail sales reports. With no top tier economic data to navigate this week, Fed speak is likely to be more influential than usual. And given the Fed is data dependent when assessing the US interest rate outlook, with no new information to consider, it’s difficult to see their narrative shifting from it still being far too soon to consider rate cuts.

That points to upside risks for USD/JPY, especially if risk appetite holds up.

Too soon to stop buying USD dips

With US Treasury yields drifting higher as markets pare Fed rate cut bets, the bullish breakout in US two year note futures last week looks to have been a false one. I’ve been watching this indicator closely as a sustained topside break of 101*24 may increase downside pressure on the US dollar in the absence of a risk-off environment. Given the price has fallen back below this level, I’m reverting to buying dollar dips rather than selling rallies near-term.

That puts USD/JPY in the radar given its strong, positive correlation with US bond yields often seen for extended periods.

USD/JPY threating downtrend

Having added over 200 pips from the lows hit last Wednesday, USD/JPY is now testing downtrend resistance dating back to the multi-decade highs above 160 set in April. With MACD crossing over from below on the four hourly timeframe and RSI threatening to break its downtrend, downside momentum looks to be ebbing, pointing to the potential for the price to start another run higher.

Should the downtrend give way, traders could buy the break with a stop loss order below the trendline for protection. The initial target would be horizontal resistance at 155.95. Should that go, the high of 156.80 set on May 14 would be in play. Above, there’s very little on the charts until 158.

With rhetoric from Japanese policymakers expressing displeasure on the yen’s level abating for the moment, the threat of intervention from the BOJ on behalf of the government looks limited unless the price runs rapidly higher without any fundamental explanation.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.