USD/JPY has been consolidating and struggling at near 108.50 following an impulsive non-volatile bearish trend since the bullish rejection off 112.00 resistance area with a daily close. On Friday, investors were astonished by unexpectedly dismal US nonfarm payrolls. Weak NFP is responsible for severe weakness of USD against JPY. Moreover, USD is widely expected to lose ground against JPY in the coming days.
The USD/JPY pair opened a new trading week with the gap up. The news that the US and Mexico reached an agreement over illegal migration and tariffs boosted high-yielding assets shifting focus away from the safe-haven JPY. The trade relations between the US and China also kept a lid on prices. So, investors might shift focus to JPY as a safe haven asset. The bullish side was supported by increasing demand for higher risky assets. US stocks rose on the hope that the Fed would cut rates to stimulate the economy. This news kicked off the carry trade. Thus, investors borrowing from Japan's banks, sell JPY and buy USD to invest in the US stock market. US Treasury yields fell after the US government said the economy added fewer jobs than anticipated during the month of May 2019. The 10-year Treasury yield dropped below 2.06%, its lowest since September 2017.
Additionally, market expectations for a Fed rate cut in June rose to 27.5% from 16.7% after dismal US nonfarm payrolls, according to the CME Group's Fed Watch tool. The market is also assessing the chance of a rate cut by July at 79% or so. The major US equity indexes posted strong gains last week as weaker than expected economic data increased the likelihood of easing monetary policy by the Federal Reserve.
Today US PPI report is going to be published. Factory inflation is expected to edge down to 0.1% from the previous value of 0.2% and Core PPI is expected to inch up to 0.2% from the previous value of 0.1%. Tomorrow, the US us due to present CPI reports which are also expected to show negative readings.
On the other hand, the most important concern for the BOJ is to maintain the Price Stability and Financial Stability such as the persistent low-interest rates can change the risk-taking behavior of financial institutions. The economic data from Japan created a mixed market sentiment. Q1 GDP expanded to 0.6% on a quarterly basis, thus bringing an annualized rate to 2.2% from 0.5%. Bank Lending in May rose more than the forecast up by 2.6% when compared to the previous month's value of 2.4%. The industrial production revealed as shown improvement along with the unemployment data, but the consumer confidence and retail sales showed some weakness.
Today Japanese M2 Money Stock report was published with an increase to 2.7% from the previous value of 2.5% which was expected to be at 2.6% and Prelim Machinery Tools Orders also showed an increase to -27.3% from the previous value of -33.4%.
Meanwhile, JPY has managed to maintain and sustain the gains over USD because of better fundamentals attracting greater market sentiment. Though JPY could face correctional weakness versus USD, JPY is expected to hold the upper hand over USD further in the coming days.
Now let us look at the technical view. The price has been consolidating under high volatility at near 108.50 with a daily close. Today, the price showed certain upward pressure but it is expected to be short-lived. With confluence to the dynamic resistance of 20 EMA, the price is expected to push lower towards 105.00 support area in the coming days.
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