Strong Jobs Data Supports Fed Outlook as Yen Shows Oversold Signals
The US Dollar declines despite the US JOLTS Job Vacancies beating expectations for a sixth consecutive month. Job openings in the US for May read 7.59 million, significantly higher than the previous expectations (7.28 million). Nonetheless, the US Dollar Index is back on the rise during this morning session. Investors will now turn their attention to Kevin Wash’s speech this afternoon at the ECB Forum in Portugal.
US Dollar Attempting To Find Support From Strong Employment Data
US economic data painted a positive picture for the employment sector, with job openings coming in strong. However, the US Dollar Index saw a sharp decline. This was partially due to the Consumer Confidence falling to 91.2 due to inflation fears. However, this can only have a short-term effect on the currency. Lower confidence due to inflation also prompts the Fed to take a harsher stance on monetary policy. As a result, the longer-term impact remains positive for the Dollar.
The US Dollar is the best performing index of the day so far, followed by the Japanese Yen and CAD. The upward price movement is a delayed impact of yesterday’s positive employment data. Indications against most currencies point towards upward price movement, except against the Japanese Yen. However, this will depend on this afternoon’s Chairman speech and ADP Employment Change.
Analysts expect the ADP Employment Change to read 118,000, very similar to the previous month. The predictions are higher than the 6-month average, which is 69,000. Therefore, if the report reads as expected or higher, the US Dollar can find support. The ISM will also release the Manufacturing Price Index, which can trigger volatility. If the index reads above 53.8, the US Dollar may experience further support.
Lastly, investors expect the Fed Chairman to provide little in terms of views and forward guidance. However, his tone and the topic he concentrates on will impact how the market expects the interest rates path to unfold. If the chairman concentrates on inflation and rate hikes, the Dollar can again rise.
In the past hour, the US Dollar is particularly seeing strong price movement against the Euro, Pound, Swiss Franc and Canadian Dollar.
Japanese Yen Oversold
The USDJPY has now risen close to 163.000 after increasing 0.55% over the past 24-hours. However, investors are now considering whether the index is oversold. Previously, major banks advised that any price above 160.000 is at risk of intervention and major resistance levels. The price is now far above this level, and officials from the government and central bank advising above 163.000 is a key concern for them.
Analysts are also advising the Japanese Yen may be oversold as inflation remains healthy, wages are on the rise and the Bank of Japan is increasing rates gradually. Economists also advise that the NIKKEI 225’s performance as the best-performing index of the year is also a good indication regarding the health of the economy.
The USDJPY is trading above its intrinsic value according to technical analysis. On the 1-hour time frame, the chart is showing clear signs of divergence on the RSI. On the daily timeframe, the RSI is again indicating the price is overbought as the RSI trades above the 75.00 level (18 period).
If the USDJPY witnesses a significant decline, the psychological price at 160.00 will be key. A short-term target can be seen at the support level at 162.465. However, a concern for traders shorting the USDJPY will be strong employment data from the US or hawkish Fed comments.
Also providing interesting price action are the EURJPY and AUDJPY. Both the Euro and Australian Dollar have seen strong price movement against the Japanese Yen in the past few days. However, the price is now quickly correcting in the opposite direction.
Key Takeaways:
- The US Dollar initially declined despite strong JOLTS data. Job openings beat expectations for the sixth consecutive month at 7.59 million.
- The Dollar is now attempting to recover, supported by the delayed impact of strong employment data.
- The Dollar is witnessing bullish price movement against most currencies except against the Yen.
- ADP Employment Change and ISM Manufacturing Prices are key risks, as stronger-than-expected readings could provide further support for the US Dollar.
- USD/JPY may be overbought near 163.00. Intervention risk is increasing, and technical indicators suggest the Japanese Yen may be oversold.
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Michalis Efthymiou
Michalis Efthymiou has extensive experience within the financial sector throughout the UK and Europe. After spending 5 years in London where Michalis operated as a financial advisor and an underwriter, he then entered the market analysis sector.
Additionally, he held training sessions and seminars in over seven countries across the globe and is now focused on providing investors with the required guidance to operate within the market with full confidence.
His teaching methods are based on technical analysis, fundamental analysis and order flow analysis, as well as how to view the market from an institutional angle.
