Trading idea for USD/JPY on June 5, 2024
USD/JPY strengthened on Wednesday, correcting a significant drop at the beginning of the week, when the pair retreated from the local maximum of 157.47. Today, the asset is testing the mark of 156.00, in anticipation of new market drivers.
At the beginning of the week, the US currency was under pressure due to weak data on business activity in the US industrial sector. The Institute for Supply Management (ISM) reported that activity in the manufacturing sector decreased last month from 49.2 to 48.7pp. Since the index remained below 50, the index is in a recession zone, market participants again talked about a possible Fed rate cut in September, as a measure necessary to stimulate the United States economy. Today in the USA, data on the labor market from Automatic Data Processing (ADP) and the index of activity in the service sector from ISM will be published. If the statistics turn out to be weak, the pressure on the dollar may increase.
In addition, the yen was supported by rumors that the Bank of Japan is considering reducing the volume of the quantitative easing (QE) program. This decision may reduce the demand for Japanese government bonds (JGB), thereby increasing their yield, which will have a positive impact on the yen exchange rate. The Bank of Japan is expected to discuss this issue at next week's meeting.
The growth of USD/JPY is also limited by fears of interference in forex currency trading by the BYA. On Tuesday, the deputy governor of the Bank of Japan, Rezo Himino, expressed concerns about the negative impact of a weak yen on the economy and inflation. According to him, the weakness of the national currency inflates the cost of imported goods and reduces consumption, as buyers postpone purchases due to high prices. However, the Bank of Japan would prefer to see inflation caused by wage growth, which would lead to increased household spending and increased consumption. The rhetoric of the representatives of the Bank of Japan indicates that the regulator will continue to closely monitor the exchange rate and fight the devaluation of the yen, which may lead to a long-term strengthening of the national currency and a decrease in USD/JPY.
Recommendations for trading USD/JPY
- Sell Stop 155.50
- Take Profit 152.50
- Stop Loss 156.80.