Last week (7/3-7/7),Trump Bitcoin conference the US Dollar Index fell by 0.6%, while most non-US currencies rose. The Japanese Yen performed the best, rising by 1.6%.
【Source: MacroMicro, Date 2023/7/3-2023/7/7】
【Source: MacroMicro, Date:2023/1/1-2023/7/7】
Last week, the US dollar index ended its two-week rebound and fell by 0.6% for the week. The lower-than-expected increase in nonfarm payroll data prompted profit-taking by dollar bulls since the beginning of the week, leading to a broad decline in the US dollar.
According to data from the U.S. Commodity Futures Trading Commission, during the week ending on July 7th, leveraged investors shifted towards a net short position on the U.S. dollar, with the number of net short contracts reaching 20,091. This is compared to a net long position of 5,196 contracts one week ago.
The addition of jobs in the United States in June was below economists' expectations, boosting the confidence of dollar bears, who are betting that the Federal Reserve will soon begin easing its policies. Hedge funds widely believe that as the Fed's tightening cycle nears its end and other central banks around the world also raise interest rates to combat inflation, the interest rate differentials between the United States and other developed markets will narrow, potentially causing the dollar to further decline.
It is worth noting that the response of interest rates does not align with the decline of the US dollar. Last week, the yield on 10-year US Treasury bonds rose above 4%, reaching a four-month high, while the yield on 2-year US Treasury bonds briefly surpassed 5%.
【Source: MacroMicro】
Mitrade analyst:
The US dollar index failed to rise in sync with the increase in US bond yields, this may be partly due to profit-taking by US dollar bulls and partly due to a narrowing of the 2-year government bond yield spread in the context of other overseas central banks adopting a more hawkish stance.
Investors should pay attention to the US June CPI data to be released this Wednesday. If the inflation figures further decline, market expectations for the Federal Reserve to stop raising interest rates after July may increase, putting pressure on the US dollar to continue its decline.
From a technical perspective, the US Dollar Index has fallen below the 20-day moving average and is approaching the key level of 102. If it falls below 102, the next support level to watch is at 101.
【Source:TradingView】
Last week, the Japanese yen rose by 1.6% against the US dollar, making it the best-performing currency. The main reasons for this were the weakness of the US dollar and the impact on excessive accumulated net short positions, which led to more strength in the appreciation of the yen as short positions were closed out, particularly on Friday last week.
【Source: MacroMicro - The correlation between the US-Japan exchange rate and the US dollar index is relatively high】
In addition, the threat of intervention by the Bank of Japan may have also helped the yen appreciate. Sakakiwara Eishin, who has intervened in the foreign exchange market before, stated that if the Japanese government and central bank deemed it necessary, unannounced intervention could be the most effective strategy for yen appreciation: "If I were in this position, I would choose to intervene in a way that is unexpected. I would wait quietly for a period of time and intervene in a situation that the market does not anticipate."
There are signs of a recent rebound in US bond yields. If US bond rates continue to rise, there will be upward pressure on Japanese bond rates as well. The upper limit of 0.5% for the 10-year Japanese bond rate may face another challenge, increasing the likelihood of the Bank of Japan adjusting its Yield Curve Control (YCC) policy.
Mitrade analyst:
Due to the persistent divergence in monetary policies between the United States and Japan, there remains a significant possibility of the yen depreciating again in the medium term (within the month). In the short term, attention should be given to this week's release of US CPI data. If the inflation figures show a larger-than-expected decrease, it could lead to a decline in expectations of a rate hike by the Federal Reserve, thus potentially causing the yen to appreciate further.
From a technical perspective, the USD/JPY has retraced to within a 1.5% range of the 20-day moving average and breached below it, indicating a greater potential for short-term rebound. However, if it falls below the key level of 141, it is likely to decline further, with support seen at 140.
【Source:TradingView】
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