The USDJPY started declining on Friday last week after US President Trump stated that he was not happy with the greenback’s value. Trump blamed the Federal Reserve’s interest rate policy while alleging currency rate manipulation by both China and the European Union. Following Trump’s statement, the USDJPY pair had a free fall from about 113.16 to 110.82. However, we expect the downtrend to be short-lived due to the reasons given below.
Yesterday, the US Commerce Department stated that new home sales declined 5.3% to a seasonally adjusted annual rate of 631,000 units in June. It is the lowest recorded level since October 2017. Furthermore, May’s sales figures were downwardly revised to 666,000 units from 689,000 units reported earlier. Economists had expected home sales, which accounts for approximately 10% of the housing market, to decline by 2.8% to 670,000 units in June. The figures did miss analyst’s estimates but the time required for the houses to get cleared has only marginally increased from 5.3 months to 5.7 months. So, it is not a major concern as of now.
The financial markets believe that Trump’s attempt to talk down the US dollar is not sustainable. Ultimately, the direction of the US dollar is based on decisions made by the Treasury and the Fed. Both organizations are not expected to yield to political pressure. These arguments were presented by Mazen Issa, Senior FX strategist at TD Securities, and Adam Cole at RBC Capital Markets.
In Japan, the manufacturing sector recorded its slowest growth in 20 months. The Nikkei-IHS Markit flash manufacturing PMI declined to 51.6, from 53 in June, missing analysts’ expectations of 53.2.
Likewise, in June, core consumer price inflation grew at 0.4% on a y-o-y basis, missing analysts’ expectations of a 0.6% increase. In the previous month, core CPI increase 0.5%.
Undoubtedly, the yen continues to enjoy the status of a safe haven asset, as demonstrated by nearly the $18 billion monthly trade surplus in Japan. However, any unexpected shock will only make Japanese investors stop buying foreign assets. Until then, the yen is likely to stay weak.
The monetary policy of Japan also keeps the yen weak. While the rest of the developed economies are raising interest rates frequently, Japan’s central bank still continues to buy securities, although at a slower pace. All these factors encourage Japanese investors to continue their shopping spree, keeping the yen weak. Therefore, the economic data and central bank decisions are expected to turn the USDJPY bullish in the short-term.
The USDJPY historical price chart indicates support for the stock at 110.60 levels. Furthermore, the UTPOW indicator, with the green line above the red line, shows that the momentum is still intact. The currency pair is also moving along the ascending trend line. Therefore, we are expecting a bullish reversal in the USDJPY pair.
To gain from the probable uptrend, we are planning to use our Forex trading account to go long near 110.60, with a stop-loss order below 109.40. We are targeting a level of 112.60 to book profits.
Additionally, we are considering buying a call option when the USDJPY pair trades near 110.60 in the Forex market. From the list of contract expiry dates provided on the binary broker’s platform, we will select the one closer to August 4th.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
