Continuation of USD/JPY flat | 17 April 2024

USDJPY:

The USD/JPY pair is trading with small losses near 154.65 on Wednesday in the early hours of Asian trading. A resilient US economy and stable inflation data have raised expectations that the Federal Reserve (Fed) may delay the easing cycle until September from June, which provides some support for the US Dollar (USD) against the Japanese Yen (JPY). However, the potential for further escalation in the Middle East may result in a shift towards safer assets, such as the Japanese Yen, which could limit the pair's gains.

On Tuesday, the US Census Bureau released data indicating a 14.7% decline in US housing starts in March compared to a 12.7% increase in February (revised from 10.7%). Building permits fell 4.3% compared to a 2.3% increase (revised from 1.9%) in the previous reading. Industrial production matched market expectations, rising 0.4% month-over-month in March compared to a 0.4% increase in February.

Several Fed officials, including Chairman Jerome Powell, emphasised that policy depends on the data and did not promise to start cutting interest rates. In a recent statement, Fed Chairman Jerome Powell indicated that the US central bank does not anticipate inflation returning to the 2% target, suggesting that an interest rate cut is unlikely in the near future.

Conversely, the Bank of Japan (BoJ) is gradually shifting towards a more discretionary approach in setting policy, with less focus on inflation. This, in turn, continues to exert downward pressure on the Japanese Yen and creates a tailwind for the USD/JPY pair. Investors will be monitoring the Bank of Japan's 25-26 April meeting for fresh insights into the bank's outlook for growth and prices.

Meanwhile, geopolitical tensions in the Middle East could result in a strengthening of the Japanese Yen and a limitation of the USD/JPY pair's gains. Late Tuesday, National Security Advisor Jake Sullivan issued a statement indicating that new sanctions against Iran and sanctions against entities supporting the Islamic Revolutionary Guard Corps and Iran's Ministry of Defence will be imposed in the coming days. Sullivan stated that the White House will not hesitate to continue taking action against the Iranian government. Tensions between Israel and Iran have risen since an attack on the Iranian embassy in Syria earlier this month that killed two senior leaders of the Iranian Revolutionary Guard Corps. Iran has publicly blamed Israel for the attack, but Israel has not yet made a statement.

Trading recommendation: Trade buy orders when the price reaches 154.80. Sell at the price level of 154.40.

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