Today there will be an important event to future recession watchers in light of the continued sharp tightening of the Fed’s policy. The US economic growth rate will be announced amid expectations of a slowdown. The USD/JPY currency pair is stable around the bullish rebound gains of 137.70, which increases expectations towards the psychological top of 140.00. The dollar/yen pair is stable around the 137.10 level at the time of writing the analysis.

Hawkish or Dovish?

Markets and investors will remain focused on Friday, when Federal Reserve Chairman Jerome Powell addresses an annual economic conference in Jackson Hole, Wyoming. This has been the place for market action rhetoric in the past, leading investors to hope that Powell will provide more clarity on a rate hike. Will it be hawkish, which is what investors call the bias towards aggressive rate increases? Or dovish, which is Wall Street’s talk of easier circumstances?

Analysts pointed to several variables that could change the Fed’s thinking ahead of its next rate policy meeting in September. They don’t think he wants to appear tough or pessimistic, maybe he wants to appear as a pigeon. They cautioned that the speech could be “nothing” with little to chew on, although the market may consider that positive given some expectations that Powell will appear hawkish.

Generally high interest rates slow down the economy in the hope of reducing inflation. But they also risk strangling the economy if they are aggressively made and drive down the prices of all kinds of investments.

Stock traders sitting still for now

Stock traders remained reluctant to make any huge bets ahead of Jerome Powell’s speech on Friday, which may provide clues to how optimistic the Federal Reserve is in the face of mounting economic challenges. These concerns did not actually go anywhere despite the controversial pivotal pacifist narrative which some have cited as one of the reasons for the short covering rebound from June lows.

Indeed, before the prestigious Jackson Hole event that Powell and global policy makers will attend, traders have had to absorb more hawkish talk. Minneapolis Fed President Neil Kashkari said late Tuesday that it was “very clear” that officials need to tighten up and get inflation under control again.

Economic reports were mixed at best, underscoring the delicate task that policy makers face in bringing down high inflation without triggering a recession. Wednesday’s data showed US pending home sales fell to the lowest level since the pandemic began. While orders from US factories for core capital goods have exceeded expectations, the picture may change in the coming months amid rising borrowing costs and uncertainty over the growth outlook.

Forecast of the dollar against the Japanese yen

• There is no change in my technical view of the performance of the USD/JPY currency pair, as the general trend is still bullish.
• I expect stability around its gains until the reaction from Jerome Powell’s statements during the Jackson Hole symposium to determine the future of raising US interest, the strength factor of the US dollar in the markets recently.
• The bulls’ destinations closest to the current performance are the resistance levels 137.85, 139.20 and 140.00, respectively.

On the downside, the support level 133.30 will be important to change the trend outlook. The currency pair will be affected today by the risk appetite of investors, as well as the reaction from the announcement of the US GDP growth rate and the number of weekly jobless claims.

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Before the announcement of the growth rate of the US economy, which is an important statement about the expectations of raising US interest rates, it pushed the price of the US dollar against the Japanese yen (USD/JPY) towards the 136.72 resistance level. 

This is its highest in 24 years. For four trading sessions in a row, the dollar-yen pair is recovering from recent selling operations that pushed it towards the 134.35 level and settles around the 136.38 level.

Yesterday it was announced that inflation in Japan has increased rapidly to the largest share of items in two decades, as the Bank of Japan waits for wage growth to accompany price hikes. The proportion of price-raising items in Japan’s core consumer price basket rose to 69.2% last month, the most in data going back to January 2001, according to a statement from the central bank published on Tuesday.

The outcome is unlikely to convince BoJ Governor Haruhiko Kuroda to change his relaxed stance. He has repeatedly insisted that current input-cost inflation must first become more sustainable, buoyed by wage growth and the recovery from the pandemic. However, signs of broad-based price increases are likely to continue to fuel speculation around a shift to normalization. Bond traders and hedge funds are already betting that the Bank of Japan will have to raise its 10-year yield ceiling or abandon the yield curve control framework altogether. Yesterday’s report also showed the cut-off average, another key indicator of price direction, reaching a new high, up 1.5%.

Japanese consumer prices excluding fresh food rose 2.1% from a year earlier in May, with energy costs rising due to a weaker yen, according to a government report last week.

On the other hand, before the announcement of important US economic data. US consumer confidence was reported to have fallen to its lowest level in more than a year in June as inflation continued to dampen Americans’ economic sentiments. Accordingly, Tuesday’s data showed that the Conference Board’s index of US consumer confidence fell to a reading of 98.7 from a downwardly revised reading of 103.2 in May. The median forecast in a Bloomberg survey of economists called for a dip to 100. The expectations gauge – which reflects consumers’ six-month expectations – fell to its lowest level in nearly a decade as Americans became more pessimistic about the outlook for the economy, labor market and incomes. The group’s measure of current conditions has decreased slightly.

USD/JPY Analysis Today:

The general trend of the USD/JPY currency pair is still bullish. As mentioned before, there is a clear disregard by Japanese officials, whether the government or the Central Bank of Japan is for the continued collapse of the Japanese yen. This may allow the dollar-yen pair to move towards the historical resistance level of 140.00 at any time. It is the specified level of Japanese officials that may intervene in the markets to stop more of it.

The US dollar is still the strongest with the expectations of raising US interest rates strongly during the year 2022. The Japanese economy is receiving continuous stimulus and is not completely excluded near the date of the tightening of the Japanese central policy. There will not be an initial break of the trend without moving towards the 130.00 support, otherwise the bulls will remain in control.

I would be cautious about my position size, but I certainly only have one direction in mind.

The gold market had initially fallen on Friday and then fell even quicker once the inflation numbers came out much hotter than anticipated. However, the bond market reversed as people started to buy bonds in fear of a recession, and in a bit of a knock-on effect, this market has skyrocketed to pierce the 50-day EMA.

Looking at this chart, if we continue to go higher from here, we will more than likely attack the $1900 level. If we can break above the $1900 level, then it’s likely that we could see the gold market looking to the $2000 level. In general, I do like gold for the longer term, and after the action that we had seen during the day on Friday, it does suggest that there are plenty of buyers out there. I think now you can look at this as a “buy on the dips” type of scenario unless we see a significant shot higher in interest rates.

If we were to turn around, you have to believe that there is a significant amount of support at the $1835 level. Furthermore, you probably have support at the $1825 level as well. In other words, this is a market that will continue to be noisy, but it certainly looks as if people are willing to get involved and start getting long on any type of value that is offered. Ultimately, I do think that we eventually find the $2000 level, as the old correlation between inflation and gold reemerged during the Friday session.

I would be cautious about my position size, but I certainly only have one direction in mind. The Friday session changed almost everything, and now it’s simply a matter of trying to find some type of value. I don’t know that I would jump into this market right away, but if we get an opportunity to take advantage of value, then that’s what you should be doing. The 200-day EMA is flat and slicing through the candlestick for the day, so it shows that we are going to continue to see a lot of consolidation, and if we were to get the second impulsive candlestick, that will change the entire complexity of the market.

The price of the EUR/USD currency pair is still moving amid bullish momentum, which was able to move towards the resistance level 1.0786, recovering from its lowest level in five years. The euro’s gains came primarily due to a hawkish ECB policy escalation and a favorable international tailwind but will likely require continued support for both this week if overcoming technical resistance is immediately loomed in the market.

In general, the single European currency, the euro, rose further last week, recording its first set of consecutive weekly gains since the early days of the second quarter of last year. This is after China took steps to ease restrictions related to the Corona virus in Shanghai, and with policy makers in the European Central Bank signaling to a more hard-line policy stance. Allocations have been set for reopening Shanghai to advance further over the weekend while restrictions on activity in the Chinese capital, Beijing, have also been eased, which is important for the euro against the dollar given the extent of its losses since the last “lockdown” early in April.

The EUR/USD price fell from around 1.10 to 1.0349 between the April opening and mid-May and an important part of this decline was driven by developments in China and price action in the RMB exchange rates.

Anything supporting China’s economic recovery or normalization of the country’s foreign trade is noteworthy for the eurozone given that 10% of the bloc’s exports went to the world’s second-largest economy in 2021, which was also the source of 21% of eurozone imports. However, the general direction of the dollar and the monetary policy of the European Central Bank are also major influences, and both are likely to respond on Tuesday when Eurostat releases its estimate of eurozone inflation in May, which the market expects to rise from 7.5% to a new record high of 7.7% .

Some analysts doubt that the European Central Bank will actually raise interest rates in the eurozone with a larger-than-usual 0.5% increase in July, which will end the era of negative interest rates in Europe, but they note the risks of speculation in the markets in this direction over the coming weeks. This comes after several ECB board members, including ECB Governor Christine Lagarde and chief economist Philip Lane, expressed their support for higher borrowing costs that could end the era of negative interest rates in Europe any time before the end of the year.

According to the technical analysis of the pair: EUR/USD formed lower highs associated with a descending trend line that has been stable since mid-2021. It seems that the price has come for another test of this resistance, which lines up with the Fibonacci retracement levels on the daily time frame. As the 61.8% Fibonacci level is around the 1.0870 level and the closest to the trend line resistance. The price is already testing the 50% level around the 1.0770 level, which might also be enough to keep gains in check. If any of these levels hold, the euro against the dollar may resume falling to the swing low at 1.0340 or lower.

In the long term the 100 SMA remains below the 200 SMA to confirm that the general trend is still bearish and that selling is more likely to resume than reverse. The 100 SMA lines up with the trend line adding to its strength as resistance. The stochastic is already indicating overbought or exhaustion levels among buyers, so a turn lower means sellers are taking over. The RSI has a bit more room to go up, so buying pressure can continue and the correction may continue until overbought conditions materialize.