US Dollar, Australian Dollar, Canadian Dollar, Mexican Peso Vs Japanese Yen – Outlook:
- USD/JPY steady after Japan nationwide price pressures re-accelerated last month.
- Key focus is now on BOJ meeting next week.
- How do the key JPY crosses look going into next week?
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The Japanese yen was steady even as price pressures in Japan re-accelerated last month amid the growing view that inflation is peaking.
Nationwide core CPI rose 3.3% in June from 3.2% in May. The so-called core-core inflation gauge (which excludes both food and energy) slowed to 4.2% on-year from 4.3% in May. This follows a slower-than-expected Tokyo June inflation report as cost-push factors subside, providing some space for the Bank of Japan (BOJ) to persist with the ultra-easy monetary policy for now.
USD/JPY Daily Chart
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BOJ is widely expected to keep its policy settings unchanged when it meets next week, but the key focus will be on fresh quarterly projections and discussions regarding phasing out the controversial yield curve control (YCC) policy after BOJ summary of opinions at the June policy meeting quoted one board member saying the central bank should debate tweaking YCC to improve market function and mitigate its “high cost”.
BOJ Governor Kazuo Ueda has emphasized that the central bank is still some way off from achieving its 2% target, warranting a continuation of the ultra-soft monetary policy for the time being.
USD/JPY 240-minute Chart
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USD/JPY: Rally could soon run out of steam
On technical charts, USD/JPY is approaching a strong converged cap, including the 200-period moving average, the 89-period, and the upper edge of the Ichimoku cloud on the 240-minute charts. This coincides with the 38.2%-50% retracement of the fall since early July. The sharp slide has raised the odds that USD/JPY’s uptrend since the start of 2023 is cracking. For more on this see “Cracks Emerge in Japanese Yen’s Downtrend; USD/JPY, CAD/JPY, MXN/JPY Price Setups,” published July 21. A retest of last week’s low of 137.25 appears to be likely.
AUD/JPY Weekly Chart
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AUD/JPY: Upside capped
AUD/JPY has failed to extend gains following the sharp rise in mid-June to the crucial ceiling at the 2022 high of 98.40. The turn lower of the 14-week Relative Strength Index (RSI) from the upper ceiling at 70 raises the odds of some weakness in the cross if history is any guide (see the chart). Any break below immediate support at the mid-February high of 93.00 could expose the downside toward 89.00.
CAD/JPY Monthly Chart
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CAD/JPY: Retreat possible
The feeble rebound in the 14-month RSI even as CAD/JPY is back to the late 2022 highs is a strong sign that the cross’ rebound from April is running out of breath. CAD/JPY faces initial resistance at 106.85 (the 50% retracement of the fall from the end of June), and a stronger barrier at 107.50 (the 61.8% retracement).
MXN/JPY Monthly Chart
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MXN/JPY: Rally fatigue
A negative momentum divergence (rising price associated with a stalling in the 14-month RSI) suggests MXN/JPY’s multi-month rally is losing momentum as it tests a major hurdle at the 2014 high of 8.72. At the very least some sort of consolidation is likely especially given low market diversity. For more details, see “Cracks Emerge in Japanese Yen’s Downtrend; USD/JPY, CAD/JPY, MXN/JPY Price Setups,” published July 10. A drop toward the 89-day moving average (now at about 7.85) can’t be ruled out.
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— Written by Manish Jaradi, Strategist for DailyFX.com
— Contact and follow Jaradi on Twitter: @JaradiManish