July 03, 2024 21:49 GMT
Yen Underperforms USD Weakness, USD/JPY Wedge With Yield Spreads Widens
JPY
Yen finished down slightly against the USD for Wednesday's session, comfortably the worst performer in the G10 space. The USD suffered broad losses elsewhere, as the BBDXY fell 0.25%, the DXY off 0.36%, following a series of poor US data prints. USD/JPY tracks near 161.60 in early Thursday dealing.
- Initially, USD/JPY rose to a fresh cycle high at 161.95 ahead of the US data prints, before pulling back a touch. With longer-dated US yields extending as much as 8-9bps lower, post the US data prints (the ISM Services was notably weak), USDJPY had a sharp move to the downside, briefly reaching 160.78.
- However, in contrast to other G10 pairs, the greenback bounced back strongly, with USD/JPY eventually rebounding nearly 100pips.
- For USD/JPY the technical backdrop remains unchanged, with Fibonacci projections at 162.21 the upside target, while the 20-day EMA is back near 159.07.
- We continue to see divergence between USD/JPY and US-JP yield differentials, see the chart below. This may bring intervention risks into fresh focus, although language used by officials in the past week hasn't appeared to represent a step up in rhetoric around FX.
- Key crosses like EUR/JPY and AUD/JPY are in overbought territory re RSIs (14), along with USD/JPY itself, although for USD/JPY the overbought signal was stronger in late April.
- On the data front today we have weekly investment flows.
- The 2024 pay deal concluded, with a 5.1% wage gain, the strongest in 33 years, see this BBG link. There was still a disparity between outcomes for large and small firms.
Fig 1: USD/JPY Verus US-JP Yield Differentials
Source: MNI - Market News/Bloomberg
Keep reading...Show less
276 words