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The Yen continues to weaken as investors trade on the BOJ’s promise to do unlimited bond purchase

9 June 2022, 02:49
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Market Focus

US equities edged lower on Wednesday amid the concern of inflationary pressure and the rising of US Treasury yields. The Dow Jones Industrial Average dipped 0.81%, 270 points, the Nasdaq Composite shed 0.73%, while the S&P 500 dropped 1.08% to end with 4,115.77. Markets continued to monitor the signs of slowing economic growth ahead of the CPI reading later this week. In the meantime, the soaring price of crude oil prices also weighed on the US equities markets. Oil prices reached a 13- week high on Wednesday. According to some analysts, if prices continued to climb, that could lead to demand destruction, potentially turning into a recession period as consumers pull back on their spending.

Twitter has scheduled a shareholder vote on Elon Musk’s acquisition deal in early August. According to Twitter, it continues to share information with Elon Musk. As a result, Twitter might plan to furnish its licensing business like a package to Musk as part of the information exchange. However, Musk’s lawyers have warned Twitter that Musk might walk away from the acquisition if Twitter fails to provide data that Elon Musk seeks on those fake accounts on Twitter.

Main Pairs Movement

EUR/USD hovered near 1.0710 ahead of the ECB meeting. The ECB is set to announce the end of its stimulus program. Regarding interest rates, European policymakers and ECB President Christine Lagarde seem to have diverging comments, with the former hinting at a 50-basis point rate hike, but the latter inclined to a conservative 25-basis point rate hike.

USD/JPY again traded higher, up 1.24%, heading toward 135.00. The Japanese Yen continues to weaken as investors trade on the BOJ’s promise to do unlimited bond purchase.

Spot gold turned slightly upside, up 0.05% at 1853.86 on Wednesday. The US dollar swung alongside the market sentiment and bond yields. Further price action has its eyes on the CPI announcement this Friday.

WTI recovered back above 120.00 level following the US inventory report. Despite the API indicating that it increased its output last week, the data still showed a decline in gasoline inventories.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD rose ahead of the ECB interest rate decision. Despite the rising U.S. 10-year Treasury yield, the Dollar remains weak amidst growth concerns in the US. EU GDP for the first quarter of the year was upwardly revised to 0.6%, quarter over quarter, thus buoying the shared currency. Market participants will be focused on the ECB interest rate decision, which will be coming in during the European trading session. The ECB is not expected to raise interest rates, but some analysts are predicting an end to the negative interest rate environment by the end of the year.

On the technical side, EURUSD is still trading below our estimated resistance level at 1.07614, but support levels at 1.0695 were successfully defended by yesterday’s market close. RSI for the pair currently sits at 54.87. On the four hour chart, EURUSD currently trades above its 50, 100, and 200-day SMAs.

Resistance:  1.07614, 1.07864

Support: 1.0695, 1.06816

GBPUSD (4-Hour Chart)

GBPUSD lost its two day winning streak and is heading lower once again, despite a broad based dollar weakness. Economic outlook for the U.K. remains gloomy as inflation and rising interest rates continue to bite into upward momentum. The BoE finds itself in a precariuos position as further interest rate hikes to tame inflation could disproportionately hurt U.K.’s economic growth. The Fed, on the other hand, still has tightening power as the U.S. economy remains robust.

On the technical side, Cable still faces its near term resistance level at 1.25691. Support levels for Cable remains around the 1.2453 price region, but that level is weak as Cable dipped below the 1.245 level during yesterday’s trading but was able to close above. RSI for the pair sits at 49.07, as of writing. On the four hour chart, Cable currently trades below its 50, 100, and 200-day SMAs.

Resistance: 1.25691, 1.26539

Support: 1.24539

USDJPY (4-Hour Chart)

USDJPY continues to soar, even though the dollar has lost steam during Wednesday’s trading. The Japanese yen continues to fall against the Greenback as the BoJ insists on defending its near zero target for the 10-year yields. The falling exchange rate, however, could be a positive sign for Japan as the country begins to open its borders to tourists. The Japanese export and tourism focused economy could benefit from a revived tourism scene and an easing supply chain as China winds down its Covid lockdown policies.

On the technical side, USDJPY has broken above our estimated resistance level at 133 and is marching towards all time record highs. Near term resistance is projected to be around the 135 price region while support levels at 130 remain firm. RSI for the pair sits at 75.56, as of writing. On the four hour chart, USDJPY is currently trading well above its 50, 100, and 200-day SMAs.

Resistance: 133

Support: 130

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