Event to watch today:
15:30 EET. USD - Change in GDP quarter over quarter
USDJPY:
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The yen is receiving fresh fundamental support following an acceleration in inflation within Japan’s services sector. The Services Producer Price Index rose by 3.6% year on year in July, up from a revised 3.4% in June, strengthening the case for further interest rate increases by the Bank of Japan. This is important for USDJPY because expectations of faster policy tightening reduce part of the dollar’s previous interest-rate advantage.
A recent survey of economists showed a notable shift in expectations: the majority now see the possibility of the Bank of Japan raising its policy rate to 1.25% as early as September, while the market is close to fully pricing in such a move. The yen’s sensitivity is also supported by the recent joint intervention by Japan and the United States in the foreign exchange market, which keeps attention focused on excessive weakness in the Japanese currency.
There is currently no strong opposing impulse from the dollar. The US currency is trading in a narrow range ahead of the July Personal Consumption Expenditures price index and fresh Federal Reserve signals, while the latest Japanese data are strengthening expectations for the Bank of Japan. As a result, the base-case scenario allows for a decline in USDJPY if the current repricing of interest rate expectations continues.
Trading idea: SELL 159.05, SL 159.45, TP 158.15
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