Japanese Yen Talking Points
USD/JPY remains overbought as Federal Reserve Chairman Jerome Powell strikes a hawkish outlook in front of U.S. lawmakers, and recent price action keeps the topside targets on the radar as the exchange rate initiates a fresh series of higher highs & lows.
USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists
USD/JPY bounces back from the session-low (112.71) even as U.S. Housing Starts contract 12.3% in June, with Building Permits narrowing 2.2% during the same period, and the dollar-yen[1] exchange rate may continue to appreciate over the remainder of the week as the Federal Reserve appears to be on track to further normalize monetary policy in 2018.
The testimony from Governor Powell suggests the Federal Open Market Committee (FOMC) will continue to embark on its hiking-cycle over the coming months as ‘incoming data show that, alongside the strong job market, the U.S. economy has grown at a solid pace so far this year.’ In turn, Fed officials may show a greater willingness to implement four rate-hikes this year as the committee ‘believes that--for now--the best way forward is to keep gradually raising the federal funds rate,’ and the FOMC[2] may continue to prepare U.S. households and businesses for higher borrowing-costs despite the growing threat of a trade war[3] with China.
Keep in mind, Fed Fund Futures now highlight a greater than 60% probability for a December rate-hike, and expectations for higher interest rates may continue to prop up USD/JPY especially as the Bank of Japan (BoJ) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.
With that said, USD/JPY may continue to exhibit a bullish behavior
