Intervention fears may deter bulls from new bets on the main trend | 01 July 2024

Event to pay attention to today:

17:00 GMT+3. USD - ISM Manufacturing PMI

USDJPY:

The USD/JPY pair commenced the new week on a subdued note and consolidated its recent strong rise to its highest level since December 1986, reached on Friday. Spot prices are currently trading with a slight positive bias around the 161.00 mark, although the upside seems limited amid speculation of an imminent intervention by the Japanese authorities to support the currency.

In fact, Japan's Finance Minister Shunichi Suzuki stated at a press conference on Friday that excessive volatility in the currency market is undesirable and that the authorities will respond appropriately to such moves. Meanwhile, Japan appointed Atsushi Mimura as the new chief diplomat for foreign exchange issues on Friday. However, the move did not bring relief to the Japanese Yen (JPY) as investors are unsure of Atsushi's stance on monetary policy. This, along with the significant interest rate differential between the US and Japan, is likely to continue to provide a supportive environment for the USD/JPY pair.

The Bank of Japan (BoJ) has not yet indicated the timing of the next rate hike. In contrast, the Federal Reserve (Fed) has been more proactive following its June meeting, forecasting only one interest rate cut in 2024. Furthermore, the likelihood of a Trump presidency is increasing concerns about the imposition of punitive tariffs, which could result in inflation and higher interest rates. This, in turn, lifts US Treasury yields to multi-week highs and continues to support the US dollar, lending further support to the USD/JPY pair and reaffirming the positive outlook.

Meanwhile, markets continue to assess the likelihood of a September Fed rate cut, given signs of weakening inflation. The US Personal Consumption Expenditure (PCE) price index provided further confirmation of the disinflationary trend observed in the Consumer Price Index (CPI) and Producer Price Index (PPI) for May. This may dissuade those who are bullish on the dollar from making aggressive bets, and may limit the upside for the USD/JPY pair. Market participants are now awaiting the release of important US macroeconomic data scheduled for the beginning of the new month. This will include the ISM manufacturing PMI, which is scheduled for release on Monday.

Trade recommendation: Trading predominantly Buy orders from the current price level.

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