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USD/JPY jumps to strongest level in 20 years

 

Wednesday, June 8, 2022

The news shaping the markets today

Pro-Kremlin separatists in Ukraine confirmed the death of another Russian general. The ongoing Ukraine-Russia conflict sent the WTI crude oil futures higher this morning.


South Korea’s economy expanded 0.6% during the three months to March, down from 1.2% growth in the prior quarter, which exerted pressure on the KRW/USD forex pair.


Indonesia’s foreign exchange reserves declined to $135.6 billion in May, from $135.7 in the previous month, sending the IDR/USD pair lower in forex trading this morning.


US consumer credit rose by $38.07 billion in April, following a $47.34 billion increase in the prior month. The Nasdaq 100 index added more than 100 points on Tuesday.


Brazil’s car production grew 10.7% to 205,900 units in May, following a 0.4% increase a month ago. However, the BRL/USD forex pair remained weak following the data release.

 

What’s happening: The US dollar recorded gains against the Japanese yen on Tuesday.

What happened: The Japanese yen has been weakening against the US dollar for weeks due to the widening gap between yields in Japan and the US.

Although the USD/JPY forex pair climbed to the strongest level in twenty years on Tuesday, the US dollar index retreated from previous highs during the session.

Why it matters: US stock market started Tuesday’s session on a weak note, but risk appetite improved during the day, exerting pressure on the safe-haven US dollar.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, had eased back to the 102 level, after hitting a 20-year high of 105.01 on May 13. However, the release of better-than-expected jobs data on Friday helped the greenback record its first weekly gain in three weeks.

With the strengthening US dollar, the Japanese yen fell to its weakest level since April 3, 2002 at 132.99 on Tuesday, as the central banks of the two countries are following different policy paths. Japan’s central bank has held its key short-term interest rate at -0.1%, while US investors are expecting the Federal Reserve to increase rates again, after the rate-hikes at previous policy meetings.

The Japanese yen weakened even as the country released positive economic data. Nominal wages in Japan grew 1.7% year-over-year in April, rising for the fourth consecutive month. Japan’s index of leading economic indicators also rose to 102.9 in April, while the index of coincident economic indicators came in unchanged at 96.8.

The JPY/USD forex pair fell around 0.5% to settle at 132.60 on Tuesday.

The British pound remained volatile, after hitting around a three-week low versus the greenback on Tuesday, a day after Prime Minister Boris Johnson managed to survive a confidence vote. The GBP/USD pared losses and settled higher by more than 0.4% at 1.2589 on Tuesday.

The AUD/USD forex pair also surged around 0.5% on Tuesday, after the Reserve Bank of Australia raised its cash rate by 50 basis points to 0.85%.

What to watch: Traders will keep an eye on moves by the central banks as policymakers decided on actions to combat rising inflation levels. The release of inflation data from the US on Friday will also remain in focus.

Japan released GDP growth data this morning, showing the country’s economy shrank 0.5% on an annualised basis in the first quarter, following 4.0% growth in the previous quarter, which could exerted more pressure on the JPY/USD forex pair today.

The markets today

European stocks will be in focus today ahead of a couple of major economic reports from the common bloc

Context: European markets settled slightly lower on Tuesday amid continued concerns around rising inflation.

Details: Global markets are awaiting some key data releases from the US this week, including the all-important inflation report due on Friday.

Although it was largely a quiet day on the company earnings releases front in Europe, several economic reports were released from the common bloc.

The S&P Global Eurozone Construction PMI declined to 49.2 in May, from 50.4 in the previous month, with the latest reading signalling the first contraction in the construction sector in nine months.

The pan-European Stoxx 600 fell 0.28% to close at 442.88 on Tuesday, with technology shares shedding more than 1%. Oil and gas stocks bucked the overall market trend and gained over 1%.

New orders for Germany’s manufactured goods declined by 2.7% in April, after a 4.2% decline in March. The country’s construction PMI also fell to 45.4 in May, from April’s reading of 46.0. The DAX 40 shed 0.66% to close at 14,556.62 on Tuesday.

UK’s services PMI climbed to 53.4 in May, versus a preliminary reading of 51.8. However, London’s FTSE 100 slipped 0.12% to close at 7,598.93 on Tuesday, amid political turbulence after Prime Minister Boris Johnson survived a vote of confidence.

France’s CAC 40 fell 0.74% on Tuesday, despite the country’s construction PMI rising to 50.9 in May, from the previous month’s 50.6.

What to watch: Investors await economic data on gross domestic product and employment change from the Eurozone today. The bloc’s economy is expected to expand 5.1% year-over-year in the first quarter, versus 4.7% in the prior period. The number of employed people are projected to increase by 0.5% during the first three months of the year, versus a 0.4% rise in the earlier period.

Other Markets: US indices closed higher on Tuesday, with the Dow Jones, S&P 500 and Nasdaq 100 up by 0.80%, 0.95% and 0.89%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 132.93 and 133.09 Negative
AUD/USD – 0.7197 and 0.7219 Positive
Gold – 1849.04 and 1850.84 Positive
Platinum – 1007.80 and 1013.30 Positive
Nikkei 225 – 28146.00 and 28200.00 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0681, -0.24%) Dow ($33,070, -0.29%) Brent ($120.76, 0.2%)
GBP/USD (1.2564, -0.20%) S&P500 ($4,143, -0.37%) WTI ($119.70, 0.2%)
USD/JPY (133.13, 0.40%) Nasdaq ($12,654, -0.45%) Gold ($1,849, -0.2%)

What else to watch today

Germany’s industrial production, UK’s Halifax house price index, and construction PMI, France’s balance of trade, current account, exports, imports and foreign exchange reserves, Italy’s retail sales, South Africa’s SACCI business confidence index, Spain’s consumer confidence indicator, US MBA mortgage applications, wholesale inventories, gasoline stocks, crude oil inventories, heating oil stocks, distillate stocks and Cushing crude oil stocks, as well as Russia’s inflation rate.

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