Continued high Fed rates support USD/JPY growth | 18 Junio 2024

Events to watch out for today:

15:30 GMT+3. USD - Retail sales

USDJPY:

The Dollar-Yen pair is unable to capitalize on its gains over the past three days and fluctuated in a narrow trading range, above the mid 157.00s during Tuesday's Asian session. Spot prices, however, remain within striking distance of the highest level since late April, reached last Friday, and seem poised to extend the recent established uptrend.

Despite the Federal Reserve's (Fed) stance, markets are pricing in the possibility of two interest rate cuts this year amid signs of easing inflationary pressures in the US. This has the US Dollar (USD) bulls on the defensive for the second consecutive day and is proving to be a key factor acting as a headwind for the USD/JPY pair. Moreover, speculation that Japanese authorities may intervene to support the Japanese Yen (JPY) is further contributing to the currency pair's downside.

Meanwhile, Fed officials continue to favor one interest rate cut in 2024. Moreover, Philadelphia Fed President Patrick Harker said on Monday that keeping rates unchanged for a while longer will help reduce inflation and mitigate growth risks. This supports rising U.S. Treasury yields and could limit dollar losses. In addition, the Bank of Japan's (BoJ) cautious policy should limit any significant appreciation of the Japanese Yen and provide some support to the USD/JPY pair.

The aforementioned fundamental backdrop leans in favor of the bulls and suggests that the path of least resistance for spot prices remains to the upside. Hence, the corrective decline may be seen as a buying opportunity as traders now turn their attention to the US macroeconomic data - monthly retail sales and industrial production data. This data, along with the speeches of influential FOMC members, should give USD/JPY a boost ahead of the publication of the BoJ meeting minutes on Wednesday.

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

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