Japanese yen falls for second straight day as impact of intervention fades

The Japanese yen is depreciating against the US dollar, moving away from support levels.
US Federal Reserve Chairman Powell does not reveal details of the Federal Reserve’s next actions.
The US dollar index remains at around 104.00, having recorded slight increases on Tuesday.

The Japanese Yen (JPY) is degenerating for a second day on Tuesday after an estimated ¥2.14 trillion in intervention by the Japanese Ministry of Finance last Thursday sent the yen from 162.00 to 157.00 against the U.S. Dollar (USD) in just two days. However, that move is starting to fade and be narrow by a turn of events over the weekend when former U.S. President Donald Trump was shot during a political rally. The event ended in the former president’s favor, boosting his chances in the race for the White House. Furthermore, in selecting Senator J.D. Vance as his vice presidential running mate, Trump has chosen someone who strongly believes in trade wars and protective policies to protect the domestic economy with even greater tariffs than those Trump issued in 2018.

Meanwhile, the U.S. Dollar Index (DXY) — which measures the value of the U.S. dollar against a basket of six foreign currencies — is jumping higher for a second straight day. Markets were a bit disappointed when Fed Chairman Jerome Powell refrained from commenting on any of the next or upcoming Financial Open Market Committee (FOMC) meetings. Traders would like to hear at least some hints about where the chairman sees inflation heading in the near future and what that means for interest rate cuts.

Daily market update: chances of BoJ rate hike are decreasing

Reuters reports that Japan spent almost 2.14 trillion yen on intervention as of July 12. The data comes from the Bank of Japan.
Bloomberg reports that many traders link the weakening of the Japanese yen with the market pricing of a potential victory of Donald Trump in the US presidential election.
Mitsubishi UFJ Morgan Stanley Securities Chief Currency Strategist Daisaku Ueno issued a note saying that the “Trump deal” signals further strengthening of the US dollar against the yen (USD/JPY), with US stocks and interest rates expected to outperform those in Japan.
Japanese stock markets managed to post miniature gains on Tuesday and closed the session with miniature gains.
The CME Fedwatch tool shows an 89.4% chance of a 25 basis point (bps) rate cut by the Fed in September and a 10.4% chance of a 50 bps cut. A no-rate scenario is not an option.
The Japan Overnight Indexed Swap curve indicates a 43.7% probability of a rate hike on July 31 and a 35.9% probability of a rate hike on September 20.
The US 10-year benchmark rate is at the lower end of this week’s range, near 4.17%.
The benchmark for 10-year Japanese government bonds (JGBs) is around 1.02%, a modern low in July.

USD/JPY Technical Analysis: Copy and Paste May Results

Taking a step back from recent events since this weekend, it seems that markets have changed their minds and seem content with Trump’s victory in November. This spells rather bad news for the Japanese Yen as pressure will now mount towards the US presidential election in November and the US Dollar will be stronger the further Trump leads in the polls. Seeing the support the Japanese Yen has received at 157.60, a move back to 160.32 seems to be the next step in the coming weeks.

On the other hand, the 55-day uncomplicated moving average (SMA) near 157.58 is acting as support and prompted a bounce on Thursday and Friday last week. On the other hand, 160.32 is the first key level to watch, where a rejection could occur that would push the JPY back to 157.58, or a breakout could occur with another rally towards 162.00.

USD/JPY Daily Chart