Yesterday’s news of slowing inflation in the US sharply weakened the dollar, anticipating the Federal Reserve’s monetary easing. In the first 15 minutes after the data release:
→ EUR/USD rose by approximately 0.45% to the psychological level of 1.09;
→ GBP/USD increased by approximately 0.55%, reaching a 2024 high.
Conversely, USD/JPY fell, with a more aggressive movement. As the chart shows, the dollar weakened against the yen by about 1.8% in the first 15 minutes after the release. This suggests that amidst the US news, the Bank of Japan intervened to support its currency, which hadn’t fallen below 160 yen per USD since June 26.
Reuters reports that Tokyo’s chief currency diplomat, Masato Kanda, stated on Friday that authorities would take necessary measures in the currency market but declined to comment on whether they had intervened.
Aside from the question of intervention, the future outlook for the yen against the dollar is of interest.
On June 27, analysing USD/JPY, we constructed an ascending blue channel.
Technical analysis of USD/JPY with updated data shows that:
→ the price remains within the boundaries of this channel;
→ yesterday’s sharp drop began near its upper boundary, finding support at its lower boundary.
Note the price behaviour in a similar situation after the sharp fall from A→B in late April. A rebound from B→C of approximately 50% occurred, forming a Rounding Top pattern at the upper part (as indicated by the arrow). Bears then reasserted themselves.
If USD/JPY follows a similar scenario, we may see a recovery to the resistance block formed by the median line of the blue channel and the 160.20 level (drawn from the April high), followed by the formation of a rounding top with renewed bearish activity (indicated by the question-marked arrow).
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