Japanese yen surges against retreating US dollar

The Japanese yen has started the week sharp gains. In the North American session, USD/JPY is trading at 146.53, down 0.68% on the day. The yen gained as much as 1.6% before paring most of these gains.

Solid US data pushes US dollar lower

The financial markets continue to be closely attuned to the health of the US economy. The July employment report was weaker than expected, triggering a global market meltdown as investors panicked that the US economy was hurtling towards a recession. The markets were able to quickly recover as last week’s US data was well-received.

Retail sales blew past expectations with a sizzling 1% gain and US inflation was almost unchanged at 2.9%. On Friday, UoM consumer sentiment improved and was higher than expected, while inflation expectations were unchanged at 2.9%, in line with expectations. Investors have regained their risk appetite which has boosted the equity markets but the US dollar has retreated against the major currencies and is down 1.8% against the yen since Friday.

The Federal Reserve is widely expected to deliver an initial rate cut at next month’s meeting, but by how much? Just one week ago, the odds were 50/50 as to whether the Fed would cut by 25 or 50 bps, according to the CME’s FedWatch. That has changed to around 75/25 in favor of a quarter-point cut, due to last week’s solid US data.

On Friday, Minneapolis Fed President Neel Kashkari said that a rate cut discussion at the September meeting was “appropriate” as inflation had eased, but expressed concern about the deteriorating US labor market. The annual Jackson Hole Symposium starts later this week and all eyes will be on Fed Chair Powell who will speak on Friday.
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USD/JPY Technical

• USD/JPY dropped below support at 147.00 and 146.37 and put pressure on 145.17
• There is resistance at 148.20 and 148.83

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