The Japanese yen slightly regained its position against the US dollar after a peak of 131 yen per dollar was reached. Given that the rates of the central banks of these countries are going in opposite directions - the Fed is raising rates, and the Central Bank of Japan continues to adhere to an ultra-soft monetary policy. The observed movement of the USDJPY trading instrument is rather more of a corrective nature. It is noteworthy that during today's interview, the governor of the Bank of Japan, Haruhiko Kuroda, said that an interest rate increase by the Federal Reserve System will not necessarily lead to a further weakening of the yen, since various factors affect the foreign exchange market.
Kuroda also said that the Bank of Japan will cope well with any difficulties and will find a way out of the current situation, although it will not be easy - given the tense geopolitical situation in the world right now and how investors and growls react to it. "The Fed's rate hike may affect the value of US government bonds and stock prices, but this does not mean that Japan's capital will continue to constantly flow into the US, causing a weakening of the yen," Kuroda said during a speech in parliament. The Governor also noted that there is no single decisive factor determining exchange rates.
Let me remind you that Kuroda made a similar statement earlier, which led to a slight strengthening of the yen against the dollar in September. The repetition of his views indicates the continued nervousness among investors after inflation in Japan reached the Bank of Japan's target level of 2% - especially after the aggressive actions of other major central banks. Kuroda's comments are under the close attention of the market.
According to a government report last week, the key inflation indicator in Japan rose by 2.1% in April, but the head of the Bank of Japan did not express any concerns or reasons for joy. Instead, he reiterated that the current inflation is not sustainable, and it is necessary to continue to pursue an ultra-soft monetary policy that stimulates economic growth.
As for other central banks, which I mentioned a little above, for example, the ECB has already started talking about the fact that the planned two rate hikes by a quarter-point in July and September this year will not be enough. More serious steps are needed, including tightening the interest rate policy. And although ECB Vice President Luis de Guindos believes that the new schedule fully fits the current situation in the economy, chief economist Philip Lane called it "clear" and "tough". The governor of the Central Bank of the Netherlands, Klaas Knot, in an interview mentioned the possibility of raising the rate by half a point if necessary, but, according to Lagarde, the normalization of policy should be gradual.
Yesterday, the minutes of the Fed's May meeting were published, where most of the meeting participants felt that an increase in the target range by 50 basis points would probably be appropriate for the next few meetings. Many participants concluded that a more complete assessment of what is happening will be received later this year. Only then will it be possible to fully assess the consequences of policy tightening and the extent to which economic changes require policy adjustments.
As for the technical picture of USDJPY, the growth will continue only after traders manage to pick up the level of 128.10, which will open a direct road to the highs of 129.80 and 131.30. It will be possible to talk about an increase in pressure on the USDJPY pair only after the bears manage to break below 126.20, which will allow the trading instrument to be pushed by 125.00 and 123.45 However, it is better not to count on the strengthening of the yen in the medium term. Surely, after a short pause, the demand for the US dollar will return.
According to the European currency, buyers need to get above 1.0700, which will lead to a new rapid jerk of the pair up to the area of 1.0740 and 1.0780. There, the bulls will again face quite serious problems - especially given the overbought trading instrument on shorter timeframes. If the pressure on the euro returns, the bulls will try to do everything to protect 1.0650. If you miss it, most likely the bears will fail the trading instrument to the lows: 1.0600 and 1.0560.
Buyers of the pound recently returned 1.2540, which allows them to count on continued growth. In the short term, bulls will certainly expect to go beyond 1.2600, which will strengthen the growth of the pound. A breakthrough of 1.2600 will lead to an instant breakthrough of the trading instrument at 1.2640 and 1.2690. A break of 1.2540 will return pressure on the pound, which will open the way to the lows: 1.2500 and 1.2450. The furthest goal in the current conditions will be the support of 1.2390, which will be updated in the event of the release of a rather weak series of fundamental statistics expected this week.