USD/JPY is steadily strengthening, updating record highs. On Tuesday, the pair is trading near the 161.65 mark, but without much activity, as traders are waiting for new market triggers.
Yesterday, the main attention of market participants was focused on Japanese business activity data. The Tankan business activity index in the service sector for the second quarter decreased from 34.0 to 33.0 points, the Bank of Japan's Tankan index of large manufacturers increased from 11.0 to 13.0 points, although analysts expected to see the same value, and the manufacturing sector index in June decreased from 50.1 to 50.0 points, testing a critical level of stagnation. The study showed that production volumes are growing due to the fulfillment of orders already received, while the number of new orders remains low due to limited external demand for Japanese products, especially automobiles and semiconductors. A slowdown in the industrial sector could exacerbate the economic downturn, and the government has already revised its forecasts.
At the same time, business activity in the US manufacturing sector from S&P Global decreased from 51.7 to 51.6 points, but remained above the key level of 50.0. The business activity index from the Institute of Supply Management (ISM) decreased from 48.7 to 48.5 points, despite forecasts of 49.1 points. The main attention is now focused on Friday's report on the US labor market. It is expected that the number of new jobs created outside the agricultural sector will decrease from 272.0 thousand. to 195.0 thousand, the average hourly wage will slow down from 4.1% to 3.9% in annual terms and from 0.4% to 0.3% on a monthly basis, and the unemployment rate will remain at 4.0%. These data will help clarify the prospects for a reduction in the US Federal Reserve interest rate by the end of the year. The main scenario assumes a rate cut in September, and a total of one or a maximum of two cuts of 25 basis points are expected.
On the daily chart, the Bollinger Bands indicator shows steady growth, as does the MACD, which has formed a buy signal. Stochastic is near the maximum values.
It is recommended to open long positions after a confident breakdown up to the level of 162.00. The target is 163.00. We set the stop loss at the level of 161.30.
If the pair breaks through the 161.30 mark down, we will get a sales signal with a target at 159.92. We will place a stop loss at 162.00.