The USDJPY currency pair is currently experiencing a bearish Wednesday trading session following the release of disappointing Japan retail sales earlier today. The April retail sales showed a decline to 5% year-on-year from 6.9% achieved in March and against the market’s expectations of an increase to 7%, and the industrial production came in at -0.6% against an expected increase of 2%—the disappointing data fuel bets on a possible tweak to the ultra-loose monetary policy employed by the BoJ.
The Yen has also been boosted by the possibility of intervention by Japanese authorities after Masato Kanda, Japan’s Vice Finance Minister for international affairs, hinted at potential actions to curb the weakening Yen, stating that they would closely observe currency market movements and respond appropriately if necessary. With the USD/JPY recently creating a new six-month high, it appears likely that there will be further attempts to influence market participants through jawboning. However, the cross is expected to face increased headwinds in the upcoming days, with a host of US economic reports due before the end of the week, with the Fed members’ speeches due later today looking to set the tone.
The 4H chart shows that the Gopher has formed an ascending channel as the greenback continued to strengthen against the weakening Yen, helping the currency pair rise over 6.5% year-to-date. With the price action firmly under bearish momentum, the 23.60% Fibonacci retracement level and the 50-day moving average (50-EMA) could act as a significant test for the move lower. The break below the 50-EMA would signal the change of sentiment towards the currency pair and would bring the 138.241 and 137.532 support levels into play.
However, should the economic data from the US continue to boost the bets of a tighter-for-longer monetary policy path from the Fed, boosting the greenback in the short term. Then, an opportunity could exist as the price action break above the 140.212 resistance level towards the newly-created six-month high at 140.930, which could act as a significant resistance in the short term
In terms of broader market factors, the focus in the coming sessions will likely fall on the US, with the debt deal and the NFP data taking centre stage. The US dollar’s dominance is under fresh pressure, with the market participants weary of potential interventions by Japanese authorities; thus, the Gopher bulls would need the upcoming economic data and speeches to strengthen the US dollar; anything short would expose the Gopher to increased downside pressure.
Sources: TradingView, Reuters.
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