USDJPY To Grind Higher on Interest Rate Hopes

FX:USDJPY   U.S. Dollar / Japanese Yen
The dollar-yen has been rather range bound, floating between 123 and 125. The U.S. dollar is likely to remain firm heading into September, as many market participants believe the Federal Reserve will finally raise the Fed funds rate for the first time since 2006.

Many traders are looking at the fact that funds rate future traders are pricing in a 54 percent chance a rate hike will occur, which has dropped four percent since the non-farm payrolls were released. Here is something that suggests that does not mean anything.

In 2009, Fed funds traders forecasted a 58 percent chance the Fed would hike rates in Q1 of 2010.

That’s how long this Game of Bankers have been playing out. Like Monopoly, the game transcends time until players begin to loose all their money.

The hope that the Fed begins to tighten policy will override the fact that Bank of Japan (BoJ) Governor Haruhiko Kuroda said that there is no need for additional monetary easing because he believes inflation will reach the central bank’s two percent target in 2016 – a target that has remained elusive for all easing central banks.

Although it is not doubted that Kuroda actually believes a steady two-percent can be achieved, the BoJ has underwritten Japan’s massive deficit spending program and has induced severe financial repression. Despite the QE program that trumps the Fed’s, Japan’s economy remains weak and fragile.

The USDJPY             is approaching 125, a mark that has not been overtaken since June 5. A close about these key level should get momentum traders to flood the pair, as it did last time to push it just shy of 126.

Resistance could be found at 125.38.

The pair does have to close over both 125.05 price resistance and the intraday descending trend created at 125.85. If the pair is unable to do so near-term, USDJPY             could trend lower to support at 124.40 and 124.15.

If traders begin to think the Fed will not tighten in September, the dollar should pullback slightly. The the hope would then be pushed back to December. If dollar will remain supported in terms of the rate hike potential by the Federal Reserve , as well as the disinflationary pressure the dollar is causing by strengthening.

Mark Carney, the Bank of England (BoE) Governor who had been recently hawkish, shied away from previous rhetoric on hiking rates citing the strong FX pressures and low inflation .

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USDJPY traditionally is correlated to TNX, (10-year treasury yield), but the yield was pinned down recently by deflationary pressures (oil)... It more looks likely to be driven by Japan monetary policy now than that of the States
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