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MTrading Team • 2023-09-06

USDJPY tracks yields to retreat from yearly top as Japan intervention, BoJ loom

USDJPY tracks yields to retreat from yearly top as Japan intervention, BoJ loom

Sentiment remains dicey on early Wednesday as traders consolidate the previous day’s losses amid mixed catalysts. Also adding filter to the trading moves could be fears of market intervention by Japan and China, as well as cautious mood ahead of the top-tier data in the Eurozone, and US, not to forget the Bank of Canada (BoC) monetary policy meeting decision.

With these catalysts, the US Dollar bulls take a breather at the highest level in nearly six months while the US Treasury bond yields retreat from a fortnight high. However, the prices of gold and crude oil fail to cheer the US Dollar’s pullback amid economic fears surrounding China and hopes of witnessing less damage to the US economy due to the higher rates, which in turn defends the Fed’s rate bias suggesting “higher for longer”.

It should be noted that Australia’s upbeat Q2 GDP and hopes of more China stimulus for real estate firms allow AUDUSD and NZDUSD to print mild gains at the yearly low.

On the other hand, the retreat in yields joined fears of hawkish BoJ and Japan meddling to allow the USDJPY to become the biggest gainer from the USD’s retreat.

It should be noted, however, that the US and European stock futures edge lower and join the Asia-Pacific equities to portray the market’s sour sentiment despite the latest corrective moves.

Elsewhere, BTCUSD and ETHUSD stay pressured despite industry data suggesting the accumulation of long positions at lower levels and likely speedy approvals to the crypto ETFs.

Following are the latest moves of the key assets:

  • Brent oil retreats from the yearly high to print mild losses around $90.00 by the press time.
  • Gold price remains pressured for the fifth consecutive day to around $1,926 at the latest.
  • USD Index retreats from the highest level since March 15 to poke 104.70 level as we write.
  • Wall Street closed with minor losses and so did the Asia-Pacific stocks while equities in Europe and the UK remain depressed by the press time.
  • BTCUSD stays pressured at around $25,700 while ETHUSD drops to $1,630 at the latest.
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Consolidate phase it is…

Although some might argue about the US economic phase to justify the latest retreat in the US Dollar, the comparative economic analysis suggests that Washington is bigger and better compared to the majority of the developed economies. The same defends the Greenback, especially when the other major economies are witnessing fears of a slowdown and have to stop hiking rates, as well as show readiness to cut rates next.

On the same line, China's stimulus lacks accolades from the market players as the recent data haven’t been impressive. Also, the repeated struggle of the Chinese real estate firms and the US-China tension weigh on the economic outlook of the Dragon nation, which in turn keeps the risk aversion on the table and challenges the recent moves.

Despite the current consolidation phase, the USDJPY is likely to witness a pullback as the Bank of Japan (BoJ) may buck the trend by exiting the ultra-easy monetary policy with higher inflation and recently firmer growth numbers, not to forget multi-month low Yen.

As a result, traders should be wary of the latest corrective moves in the market and wait for clear directions before taking any major positions against the US Dollar.

  • Strong buy: USDCAD
  • Strong sell: ETHUSD, GBPUSD, Gold
  • Buy: USD Index, Nasdaq, USDJPY

EU, US data and BoC in the spotlight

Although the early Wednesday hasn’t been too impressive, despite disappointing German Factory Orders and improvement in Australia's Q2 GDP, the market players may witness an active day during the rest of the European session and in the US trading session. That said, Eurozone Retail Sales, US ISM Services PMI and monetary policy decisions of the Bank of Canada (BOC) will be crucial to watch. Should the US data improve and the EU details keep disappointing, as well as BoC fails to impress the Loonie bulls, the Greenback’s further rally can’t be ruled out.

May the trading luck be with you!