Market Analysis – USDJPY
The US Dollar is growing against the Japanese Yen both this morning, and the day before due to technical movements and pressure on the Yen. When we cite technical movements we are referring to price movements in the exchange rate which are mainly triggered by technical elements such as trends, corrections, and oversold price levels. When looking at the price of the USDJPY compared to other major currency pairs, we can see the price movement is unique, meaning aspects of the Yen are having the most impact at the moment. Looking at the medium to long term we can see the price movement is currently still moving within a downtrend, but at the same time attempting to correct back upwards. The exchange rate did attempt to build momentum yesterday, but the price formed a rejection level and significant price at 109.060.
Generally speaking, the US Dollar remains under pressure even with the positive movement this morning amid poor April labor market data. US employment increased by only 266,000 against the forecast of 978,000. Unemployment, instead of the expected decline, rose to 6.1%. Poor employment growth was fueled by a lack of skilled labor, reluctance on the part of the population to go to work due to the ongoing pandemic, and continued payments of increased benefits. This data disappointed investors and they stopped expecting an imminent rate hike.
Nevertheless, experts believe that the labor market will continue to recover, albeit at a slower pace than expected. For example, Labor Secretary Marty Walsh, commenting on the latest statistics, said that the coronavirus was still putting pressure on job increases, but expressed optimism about the economic recovery. Price movements are likely going to be further fueled by the central bank who is likely to comment on the announcement eminently. The regulator can cause further drivers in the market simply by his dovish or hawkish tone.
The Japanese Yen is under pressure due to the difficult situation with the coronavirus pandemic, which threatens the holding of the Olympic Games in Tokyo. The state of emergency was extended in the region plus three other prefectures last week, and Prime Minister Yoshihide Suga said that his priority has always been to protect the lives and health of Japanese citizens. Overall, he expressed that the event can only take place after the spread of the virus is taken under control.
Against this background, the head of the International Olympic Committee, Thomas Bach, postponed his visit to Japan until July. He was due to visit the Olympic venues this month. According to the latest polls, more than 60% of Japanese are in favor of canceling the Olympic Games. Also, from the statements of the Prime Minister, it is worth noting his refusal to draw up an additional expenditure budget in order to support the economy. He noted that the government had enough money to cope with the negative effects of the pandemic.
Looking at the Japanese Yen, in general, we can see the magnitude of the price movement amongst Yen exchange rates by looking at the Japanese Yen Index (JPYX). Looking at the index, we can see the currency formed its third consecutive bearish candlestick yesterday and is dropping further this morning. It is also worth noting the JPYX moved to a new record low for this year. In turn, looking at the US Dollar Index we can see that the Dollar has in fact formed two bearish candlesticks, though they remain insignificant as the level of volatility is low and the price has not necessarily increased, but simply stabilised at the market close price from last week.
Over the next 24 hours the market will be anticipating the release of the US inflation data. The Federal Reserve Chair, Jerome Powell, has shown every sign of staying patient on policy, even if the economy runs hot. However Dallas Fed President Robert Kaplan caused a stir last month by calling for beginning to talk about tapering, and there are growing signs that prices could keep rising at a clip if unchecked. The market will be looking to see how the inflation rate may possibly affect the exchange rate going forward.
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