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Weekly outlook: USD/JPY bulls could send the price higher, tempting BoJ to intervene once more

Alejandro Zambrano Alejandro Zambrano 17/06/2024
Weekly outlook: USD/JPY bulls could send the price higher, tempting BoJ to intervene once more  Weekly outlook: USD/JPY bulls could send the price higher, tempting BoJ to intervene once more
Weekly outlook: USD/JPY bulls could send the price higher, tempting BoJ to intervene once more Alejandro Zambrano

Last week's US Consumer Price Index (CPI) figures showed that US inflation increased by 3.3% annually, slightly below the anticipated 3.4%. Despite a brief dip in the US dollar following the report, it emerged as the winner as we approached the weekend.
 

Here are the reasons why:
 

French Political Uncertainty: President Macron called for snap elections in France due to the success of far-right and left-right parties in the European parliamentary elections. This has raised concerns about increased government spending and the potential for France to consider leaving the Eurozone. As a result, French banks like Société Générale dropped by 17%, and French government bonds sold off, adding to Euro worries.
 

Federal Reserve's Hawkish Stance: The Federal Reserve's recent hawkish tone included projections for core PCE to reach 2.8% by year-end, higher than the 2.6% anticipated in March, and headline PCE inflation to be at 2.6% instead of 2.4%. A hint that interest rates could remain higher for longer. Moreover, the unemployment rate and GDP growth projections remained unchanged, with the latter at 2.1% for 2024. The Fed also said it expect to reduce rates just once and by 25 bps by the end of the year only one rate cut this year, contributing to the dollar's resilience.
 

USD/JPY spiked higher following a disappointing Bank of Japan rate meeting. The BoJ left rates unchanged, despite inflation reported at 2.5% and could soon reach 3% according to bank analysts. In addition, the central bank was vague in its plans for reducing asset purchases. We point out that, even if the central bank increases interest rates from current 0.1%, it would be a big ask to see the gap between Japanese rates and the rest of the world to narrow significantly.
 

Upcoming Economic Events:
 

  • Tuesday: The Reserve Bank of Australia (RBA) is expected to hold cash rates unchanged. 

  • Wednesday: The UK CPI is anticipated to drop to 2% from 2.3%, and core inflation is expected to drop from 3.9% to 3.5%. The data is released at 7 a.m. London time. 

  • Thursday: The Bank of England is anticipated to hold rates unchanged at 5.25%. Despite that quarterly UK GDP only increased by 0.6%, inflation likely reaching 2%, and Claimant count change increasing to 50.4K the worst reading since March 2021.  

  • Friday: Updates on flash PMIs are expected. 

 

Last week, we predicted that the EUR/USD could add to its losses, which it did. Looking at the big picture, the price is being squeezed between two long-standing trend lines. The two crucial levels right now are the April low at 1.0599 and the May high at 1.0912.
 

In the short term, the trend will remain bearish below 1.0821, and we might see a bit of a bounce. However, given the current situation, it's likely that the price will be close to 1.0700 by the end of the week.
 

It's important to note that as the trend lines continue to squeeze the range, trading EUR/USD could become increasingly difficult over the next couple of weeks.
 

EUR/USD
 

Last week, we predicted that EUR/USD could add to its losses, which it did. Looking at the big picture, the price is being squeezed between two long-standing trend lines. The two crucial levels right now are the April low at 1.0599 and the May high at 1.0912. In the short term, the trend will remain bearish below 1.0821, and we might see a bit of a bounce. However, given the current situation, it's likely that the price will be close to 1.0700 by the end of the week.
 

It's important to note that as the trend lines continue to squeeze the range, trading EUR/USD could become increasingly difficult to trade over the next couple of weeks.
 


 

USD/JPY
 

For USD/JPY, the fundamentals favour a higher USD. As seen on the chart, we triggered a smaller ascending triangle pattern with a target of 161.21. This pattern will remain active as long as the price stays above 157.12. The Bank of Japan's recent actions have been vague, and with Japanese inflation expected to rise to 3% from 2.5%, there's speculation on how much they will raise interest rates. Japanese rates remain at 0.1%, significantly lower than US rates, pushing USD/JPY higher despite central bank intervention.
 

 

Brent Crude Oil (BRENT)
 

UK Brent Crude Oil is trading sideways between $72.60 and $91.73. Over the next couple of days, we might push a little higher, perhaps to $84.65 and maybe $88.00. However, given the overall lack of a strong trend, trading Brent Crude Oil may be challenging.
 


 

Gold (XAUUSD)
 

Gold prices bounced as anticipated between $2298 and $2265. However, the price has not resumed its uptrend. And the price probably needs to trade above $2375, for this to happen. For now, bulls will remain in control as long as the price is above 2265.
 

 

Dow Jones (US30)
 

The Dow Jones dipped to support and then pushed higher, reaching the first take profit level before being rejected again. For now, the trend will remain bullish above 37881, with the first resistance levels at 39086 and 39919.
 

 

NZD/USD
 

The New Zealand dollar is looking interesting. We already know that EUR/USD and GBP/USD are bearish. The New Zealand dollar might turn bearish on a break to 0.6086, potentially dropping towards 0.6036 and 0.6000.
 


 

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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