Market situation on July 2 – did it start? Watch out for USDJPY!
During the night reports appeared that the "surprise" tactic is possible, although the market said the optimal time window for action might be Friday due to lower liquidity caused by the absence of Americans celebrating Independence Day – I also pointed this out in recent reports. As you can see, the "surprise" tactic already implies slightly different scenarios – the Japanese are no longer waiting for today’s US Department of Labor data release at 14:30, which could bring strong readings (including due to the World Cup).
In the morning USDJPY clearly fell to 161.09, though it rebounded slightly later. This does not look like a classic intervention, but rather a "rate-check", i.e., the central bank sending a query to dealers about the rate, indicating full readiness for such a move and often preceding it. Friday could therefore bring significant changes to USDJPY.
The clear support is the 158.50 area based on a 15‑month uptrend line and would likely be tested in such a situation. A stronger drop in USDJPY could affect equity markets due to the carry‑trade mechanism. Low rates (despite the BOJ raising to 1.0%) and a weak yen encouraged borrowing in this currency and investing it in speculative assets – recently not emerging markets, but more AI‑related companies. Thus the recent strong swings in tech stocks could extend.
Strong moves in USDJPY can also affect other USD pairs. On Thursday morning it is seen that the dollar is not gaining and slightly weakens, although theoretically investors should "fear" today’s US Department of Labor data, and the fact of limited liquidity due to tomorrow’s holiday as Independence Day. Median forecasts indicate that the number of new non‑farm jobs (NFP) in June could have been 110‑115k versus 172k in May, but on the other hand the forecast spread is huge (from 25k to as much as 200k jobs).
Additionally it is pointed out that over 40k jobs could have been generated by the World Cup, and the Treasury Secretary, Scott Bessent, mentioned that the data would be good two days ago. The question, however, is whether in such a situation the market should really consider it a significant piece of the puzzle in terms of interest rates, or whether CPI inflation published on July 14 will be more important?
Yesterday Kevin Warsh during a panel in Sintra implied that the central bank is abandoning so‑called forward guidance (more surprises?), but key were the words about determination to stick to the 2.0% inflation target. Although, as he himself noted, inflationary pressure has eased slightly recently. Nevertheless, after Warsh’s remarks yesterday markets returned to pricing in two rate hikes – in September and January. At the same time the dollar index did not even come close to last week’s highs. This is an important observation regarding the trends that may appear in the coming weeks.
From the remaining information it is worth noting the other panelists from yesterday in Sintra. Christine Lagarde from the ECB mentioned that risks to economic growth and inflation have become more balanced, which the market took as a signal of a lower probability of a second rate hike this year – but EURUSD practically did not react.
Meanwhile Andrew Bailey from the Bank of England admitted that the central bank will not consider a rate cut scenario in the near future due to weak economic conditions – which in turn supported GBPUSD. Tiff Macklem from the Bank of Canada spoke little about monetary policy – as a result USDCAD remained in consolidation that formed in recent days after earlier strong hikes.
Today in the calendar the US Department of Labor data at 14:30 will dominate the markets. In addition we will look at the USDJPY situation.
USDJPY – is this the start of a slide?
Currency interventions are often "unpredictable" in terms of the scale of possible fluctuations. What happened this morning is more in line with a rate‑check scheme (checking the rate by the BOJ) than a real physical exchange. But it also precedes such action. The chart shows a black candle that may continue. Strong support is only the 158.50 area set by the 15‑month uptrend line. A strong shift in USDJPY could affect other USD pairs, creating reasons for its correction regardless of today’s 14:30 NFP data and their market interpretation.
Daily USDJPY chart
EURUSD with bullish indications?
The EURUSD pair today returned above 1.14, and the white candle is a contrast to yesterday’s move that brought prices to support at 1.1361. The daily indicator layout is ... bullish (daily MACD even generated a buy signal), which could signal a breakout of the last peak at 1.1436 and resistance at 1.1442. It is not excluded that the move will be somewhat "artificial" resulting from a possible strong downward shift in USDJPY (in a physical intervention scenario).
Daily EURUSD chart
