Daily Analysis USDJPY - 13 July 2023

The ongoing risk-on sentiment, characterized by a prolonged rally in equity markets, is suppressing the demand for the safe-haven Japanese Yen (JPY). This, coupled with oversold conditions on the hourly charts, has prompted some short-covering activity in the USD/JPY pair during intraday trading. The pair had experienced a sharp decline of around 700 pips in the past two weeks, starting from levels just above the psychological level of 145.00. However, given the prevailing bearish sentiment surrounding the US Dollar (USD), a significant recovery is unlikely despite these factors.

The USD Index (DXY), which measures the performance of the USD against a basket of currencies, currently lingers near its lowest level since April 2022. This is because investors are increasingly convinced that the Federal Reserve (Fed) will only raise interest rates once more this year. This belief was reinforced by the US Consumer Price Index (CPI) report released on Wednesday, which indicated a further moderation in consumer prices during June. Consequently, US Treasury bond yields continue to decline, exerting downward pressure on the USD and limiting any notable upside potential for the USD/JPY pair.

Furthermore, speculation that the Bank of Japan (BOJ) may adjust its ultra-loose monetary policy settings as early as this month could provide support to the JPY and impede substantial gains for the USD/JPY pair.

The USD/JPY pair has found support at the significant historical level of 138.00 following five consecutive days of losses. There is potential for a correction to occur from this current level, although the impact of the Producer Price Index (PPI) data remains uncertain in determining the direction. Additionally, the sell-off in yields is expected to influence the pair, considering the significant decline witnessed in the previous day's sell-off.

Resistance 3	Resistance 2	Resistance 1	Support 1	Support 2	Support 3
142.00	141.20	140.22	139.00	138.00	136.00