Yen steady in holiday-thin trading

The currency markets will be in quiet mode today, as US markets are closed for the Fourth of July holiday. The yen hasn’t shown much movement over the past week, although USD/JPY hit another 24-year high last week when it climbed to the 137.00 line.

In the US, there are no tier-1 releases until Wednesday, with the release of the FOMC minutes. According to CME’s FedWatch, the markets have priced in a supersize 75bp increase at 85%, up from 75% late last week. The Fed appears intent on continuing to raise rates aggressively, with Fed Chair Powell saying last week that curbing inflation was his primary task right now. At the ECB forum in Sintra, Portugal, Powell said it was important to prevent inflation expectations from becoming anchored, adding that restoring price stability was paramount, even if that mean negative growth.

Powell has understandably tried to downplay concerns about a recession, but the nagging “R” word continues to hover close by. On Friday, the Atlanta Fed GDP tracker indicated that the US is likely already in a recession, with the economy contracting by 2.1% in Q2, which together with the Q1 decline of 1.6% would mean the economy is in recession.

Markets brace for weak Japan household spending

Japan releases household spending on Friday. Japan’s inflation of 2.1% is much lower than the levels we are seeing in the UK and US, but consumers are not used to prices rising, after 15 years of very low inflation.  A weaker yen has made imports more expensive, and the Japanese consumer is holding tighter to their purse strings. Household spending is expected to fall by 0.9% in May, after a decline of 1.7% in April. The BoJ has kept an ultra-accommodative policy in place, trying to boost domestic demand. If household spending posts another large decline, it would underline the fact that the economy is still not responding to the BoJ’s loose policy.

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USD/JPY Technical

•  135.59 is a weak resistance line. Next, there is resistance at 136.65
• There is support at 134.17 and 133.11

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