Japanese Yen Week Ahead as Fed Skip Bets Grow: USD/JPY, EUR/JPY, AUD/JPY

US Dollar, Euro, Australian Dollar Vs Japanese Yen – Price Action:

• USD/JPY is holding above key support.
• EUR/JPY’s rally looks tired, while AUD/JPY’s rebound lacks steam.
• What is the outlook for the key yen crosses?

The Japanese yen’s slide appears to be losing steam as US Federal Reserve rate hike expectations take a ‘U’-turn after dovish remarks from central bank officials.

The market is now pricing in a 79% chance of a pause at the June 13-14 FOMC meeting, compared to 35% a week ago, after several Fed officials including the vice chair-designate pointed toward a ‘skip’ in June. “Skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming,” vice chair nominee Philip Jefferson said late last week.

However, any decision to hold rates steady should not be viewed as the end of the tightening cycle, the vice chair nominee added. Fed Chair Powell last month left the door open for a pause at the June meeting given the tightening in credit conditions, but reiterated that the central bank would now make decisions “meeting by meeting”.

USD/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

Meanwhile, Japan’s Q1 GDP data and Econ Watchers Survey are due on Thursday, which could shed some light on the economy. Macro data have been underwhelming with the Economic Surprise Index for Japan at the lowest level since January. With Japan’s headline inflation showing signs of moderation and the Bank of Japan’s (BOJ) persistence with ultra-loose policy settings, there are very few monetary policy cues to push USD/JPY meaningfully in either direction as of now. For more discussion see “Making Sense of Japanese Yen’s Recent Slide: Is it the Start of a Renewed Leg Lower?”, published June 1.

USD/JPY 240-minute Chart

Chart Created by Manish Jaradi Using TradingView

USD/JPY: Holding above a key cushion

USD/JPY has rebounded from quite strong converged support on the 89-period moving average and the lower edge of the Ichimoku cloud on the 240-minute charts. However, as the colour-coded candlestick charts show, USD/JPY remains in a consolidation phase within the broader short-term bullish phase (see the 240-minute chart).

The pair last week retreated from a stiff hurdle on the median line of a pitchfork channel from January (at about 141.30), roughly coinciding with the upper edge of a rising channel also from the start of the year. Last week’s high of 141.00 could continue to pose constraints on the latest rebound. On the downside, USD/JPY would need to drop below the mid-May low of 133.75 for the immediate upward pressure to fade.

EUR/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/JPY: Sideway price action could stretch a bit

The sharp drop in momentum even as EUR/JPY last week attempted to retest the early-May high of 151.60 is a sign that the cross could be due for an extended consolidation given the March-May rally. This follows a retreat from the upper edge of a rising channel from mid-2022 (see chart). There’s no threat to the broader uptrend unless EUR/JPY were to break below the 145.50-146.50 floor. In sum, EUR/JPY could be settling in a 146.00-152.00 range in the interim.

AUD/JPY Weekly Chart

Chart Created by Manish Jaradi Using TradingView

AUD/JPY: Struggles at a key ceiling

AUD/JPY is once again testing the tough converged barrier on the 200-day moving average, coinciding with the February high of 93.00. Interestingly, momentum hasn’t picked up substantially to reflect the renewed strength that the cross showed last week. Nevertheless, the cross needs to clear the cap for the outlook to improve materially. An encouraging sign for bulls is that AUD/JPY hasn’t broken any support, keeping alive the possibility of an eventual break higher.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish