- The US dollar recovered from the previous session as Israel and Hezbollah exchanged missiles.
- The Fed chair opened the door to a rate cut in September.
- BoJ Governor Kazuo Ueda maintained a hawkish tone on Friday.
USD/JPI price analysis is mildly bullish as investors balance a stronger dollar and yen amid safe havens. Over the weekend, escalating tensions in the Middle East prompted investors to buy safe-haven assets such as the dollar and yen. However, trading was weak as UK markets were closed for a bank holiday.
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Notably, the US dollar recovered from the previous session as Israel and Hezbollah exchanged missiles. Tensions have remained high since the deaths of senior leaders in the war. Moreover, the chances of a cease-fire agreement between Israel and Gaza have fallen, raising fears of a longer war that could spread.
Safe-haven inflows into the dollar reversed last week’s slide after Powell’s speech. Notably, the Fed chairman opened the door to a rate cut in September, weakening the dollar. Fed policymakers are more confident that price pressures will ease to the 2% target. At the same time, they are becoming weary of the weak labor market. Accordingly, the probability of a rate cut in September has increased.
Meanwhile, BoJ Governor Kazuo Ueda maintained a hawkish tone on Friday. The difference in tone between the two main policy makers has created a divergence in policy views. Investors expect lower rates in the US and higher rates in Japan. The divergence boosted the yen, raising the prospect of a narrowing gap between Japan and the US.
Investors are now awaiting the US core PCE price index for more clues on the timing and size of future Fed rate cuts.
USD/JPI Key Events Today
- US CB Consumer Confidence
USD/JPI Technical Price Analysis: Corrective move meets SMA resistance
On the technical side, the USD/JPI price rose to retest the 30-SMA resistance after a sharp decline. However, the bearish bias remains intact and the price is likely to respect the SMA as resistance. Notably, the bullish move was weak and shallow, indicating a correction.
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Therefore, if the bears remain in control, the price could jump lower with an impulsive move to retest the 142.50 support level. Here the bears will encounter a solid barrier. A break below will solidify the bearish bias. However, if support remains firm, USD/JPI will consolidate or bounce higher.
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