The US dollar versus the Japanese yen has found some resistance at the 143.50 level, and that could lead to further losses in the greenback this week.
The first piece of market-moving data will be Tuesday’s inflation rate from Japan, while the Federal Reserve’s interest rate decision will take centre stage on Wednesday.
USDJPY 4 Hour Chart
The USDJPY now trades at the 143 level and there is support at the 141.50 level. However, a move below that could open up a path to the July highs around 139.40.
Japanese inflation rose to 2.6% in August after being stuck at the 2.5% level for three months. If there is a further increase in the rate, then the yen could stage a rally. However, the Bank of Japan will likely still prove stubborn in tightening its monetary policy. Central banks such as the BOJ are happy to sit back and let the likes of the Federal Reserve tighten liquidity in the global markets.
Markets are expecting another 0.75% interest rate hike from the Fed on Wednesday, but some analysts have said that a 1% move is possible. If the bank hikes by 0.50-0.75% and adds some dovish statements about the future path of rates, then the dollar could see a sell-off.
Analysts at ING bank said:
“Since the Fed has remained quite hawkish in recent commentaries and may not have any interest in pushing back excessively hawkish pricing at its September meeting (it has instead pushed back against rate cut expectations recently), it may mostly be up to the data to force any dovish re-pricing at this stage.”
The West Australian newspaper noted that the week ahead will see a “500 basis point global assault”.
The US economy has remained strong throughout the tightening cycle, and it does not seem that the central bank will feel pressured to change course. The threat of currency intervention by Japanese officials means that the upside in the USDJPY pair is likely capped at the recent highs of 145.
