July 14, 2022 6:12:37
The Yen continued its decline against the U.S dollar, refreshing the 24-year low at 138.00. The depreciation that began in late May shows no sign of exhaustion as it dropped to the levels last seen in September 1998.
What drives the market?
The unbuttered U.S dollar in times of heightened volatility weighs on all majors across the board. Global recessionary fears and risk-off mood kept the sustained buying momentum in USD. The uncertainty in the European economy due to the Ukraine-Russia war, inflationary fears, and the widening gap in Fed and the other central bank’s monetary policy stance makes the dollar an attractive bet owing to its safe-haven image.
After the stronger-than-expected NFP data, the US CPI exceeded the market expectation too. The U.S June inflation data came in hotter than expected, as the annual inflation rate surged to 9.1 in June 2022. It is the highest level since 1981 and against the market expectation of an 8.8% increase.
The shorter-term U.S treasury yields were trading higher at 3.19% compared to the benchmark 10-year yields quoted at 2.95%. The market generally takes the yield curve inversion as a sign of recession.
So what does that mean?
Strong economic data is expected to pile up the pressure on the Federal Reserve to raise key benchmark interest rates even more aggressively. Now, this could be further interpreted as a jumbo hike of 100 basis points at its next meeting compared to 75.
According to the CME’s Fed Watch tool, there is a 78% probability of a 100 basis points increase in the Fed’s July meeting.
Recently, the Bank of Canada (BoC) surprised the market after it raised its policy rates by 100 basis points to 2.5%. The biggest one-time rate hike since 1998.
As of press time, USD/JPY is exchanging hands at 138.45 up 0.70% for the day.
USD/JPY continues to the north
The USD/JPY pair’s upside momentum refused to die out any sooner. The asset registers further gains in the early European session.
On the daily chart, the ascending trend line from the lows of 116.07 acts as a cushion for the bulls. The pair forms the classic higher highs and higher lows pattern.
The price is comfortably placed above the 20-day and 9-day EMA’s (Exponential Moving Average).
A daily close above 138.50 would pave the road for 148.00 in the next few sessions.
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