Japanese Yen consolidates against USD as traders await US GDP ahead of BoJ on Thursday

30 Oct 2024, 02:17 by Haresh Menghani · FXStreet

The Japanese Yen remains within striking distance of a multi-month low against the USD.
The BoJ rate-hike uncertainty and the upbeat market mood continue to undermine the JPY.
Traders now look to the crucial BoJ policy decision and important US macro data this week.

The Japanese Yen (JPY) continues with its struggle to register any meaningful recovery against its American counterpart and remains within striking distance of a three-month low touched this week. Speculations that the loss of a parliamentary majority for Japan's ruling coalition could make it difficult for the Bank of Japan (BoJ) to tighten its monetary policy further. Adding to this, a generally positive risk tone is seen as a key factor undermining demand for the safe-haven JPY.

However, fears that Japanese authorities will intervene in the market to prop up the domestic currency offer some support to the JPY. Traders also seem reluctant to place aggressive directional bets and prefer to wait on the sidelines ahead of the crucial BoJ policy decision on Thursday. Furthermore, this week's important US macro releases will be looked for cues about the Federal Reserve's (Fed) interest rate outlook, which will drive the US Dollar (USD) and the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen traders seem non committed ahead of BoJ and US macro data

Japan's Economy Minister Ryosei Akazawa said on Tuesday that a weak yen can push up prices through higher import costs and if wages are not rising as much, this would push down real household income and depress private consumption.
Earlier Japan's Finance Minister Katsunobu Kato reiterated that the authorities will closely monitor FX moves, including those driven by speculators, with a higher sense of vigilance, fueling speculations about a potential government intervention.
The political turmoil in Japan adds to a layer of uncertainty about the Bank of Japan's rate-hike plans, which, in turn, should keep a lid on any meaningful appreciating move for the Japanese Yen on the back of the prevalent risk-on environment.
The US Dollar remains on the defensive below its highest level since July 30 set on Tuesday and drags the USD/JPY pair away from a three-month top, though the downside seems limited ahead of this week's key central bank event/data risks.
The BoJ is scheduled to announce its policy decision at the end of a two-day meeting on Thursday. Investors this week will also confront important US macro releases, which might provide fresh cues about the Federal Reserve's rate outlook.
Investors are pencilling in a slower pace of interest rate cuts by the Fed as a series of upbeat economic data released recently pointed to the underlying strength of the US economy, which has been pushing the US Treasury bond yields higher.
The Conference Board reported on Tuesday the US Consumer Confidence Index registered its largest single-month gain since March 2021 and rose to 108.7 in October – a nine-month high – from an upwardly revised 99.2 in the prior month.
This reflected optimism in business conditions, the job market and incomes, offsetting a rather disappointing Job Openings and Labor Turnover Survey, or JOLTS report, which showed that vacancies fell to more than a 3-1/2-year low in September.
Adding to his, concerns that the spending plans of Vice President Kamala Harris and the Republican nominee Donald Trump will further increase the budget deficit, which further contributed to the recent upsurge in the US bond yields.
Traders now look to Wednesday's US economic docket, featuring the release of the ADP report on private-sector employment and the Advance GDP report, which is expected to show that the economy expanded by a 3% annualized pace in Q3.

Technical Outlook: USD/JPY repeated failures to find acceptance above 61.8% Fibo. warrants caution for bulls

From a technical perspective, last week's breakout through the 150.65 confluence – comprising the 100-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September downfall – was seen as a fresh trigger for bulls. That said, this week's repeated failures to find acceptance or build on the momentum beyond the 61.8% Fibo. level warrants some caution. Moreover, the Relative Strength Index (RSI) on the daily chart remains close to the overbought zone, making it prudent to wait for some near-term consolidation or a modest pullback before positioning for further gains.

Any subsequent slide below the 153.00 mark, however, is likely to find some support near the overnight swing low, around the 152.75 region, ahead of the 152.40 area, or the weekly through. Some follow-through selling could drag the USD/JPY pair to the 152.00 mark en route to the 151.45 support and the 151.00 mark. The downward trajectory could extend further towards challenging the 150.65 confluence resistance breakpoint, which should now act as a key pivotal point and a strong base for spot prices.

On the flip side, the 153.85-153.90 region now seems to have emerged as an immediate strong barrier. A sustained strength beyond, leading to a breakout through the 154.00 mark, could lift the USD/JPY pair beyond the 154.35-154.40 supply zone, towards reclaiming the 155.00 psychological mark. Spot prices could eventually climb to test the late-July swing high, around the 155.20 region.

Economic Indicator

Gross Domestic Product Annualized

The real Gross Domestic Product (GDP) Annualized, released quarterly by the US Bureau of Economic Analysis, measures the value of the final goods and services produced in the United States in a given period of time. Changes in GDP are the most popular indicator of the nation’s overall economic health. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Bureau of Economic Analysis (BEA) releases the Gross Domestic Product (GDP) growth on an annualized basis for each quarter. After publishing the first estimate, the BEA revises the data two more times, with the third release representing the final reading. Usually, the first estimate is the main market mover and a positive surprise is seen as a USD-positive development while a disappointing print is likely to weigh on the greenback. Market participants usually dismiss the second and third releases as they are generally not significant enough to meaningfully alter the growth picture.

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