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Will the US dollar continue to rise after its rebound?

Market Review
Last week (6/19-6/23),Bitcoin crash the US dollar index rose 0.6%. Non-US currencies generally fell, with the Australian dollar experiencing the largest decline of 2.8%.



【Source: MacroMicro   Date2023/6/19-2023/6/23】

【Source: MacroMicro   Date2023/1/1-2023/6/23】


1.The US dollar strengthened, while the euro rose and then fell back

Last week, the euro rose and then fell, closing down 0.3%. The Bank of England's (BOE) unexpected decision to raise interest rates by 50 basis points supported the euro's rise initially. However, due to the unexpected drop in Eurozone PMI data and a rebound in the US dollar, the euro quickly declined.






【Source: MacroMicro】




Data shows that the Eurozone's composite PMI fell to 50.3 in June, hitting a five-month low. The region's business growth almost stalled in June due to worsening manufacturing recession, and service sector activities also showed little expansion. Meanwhile, although US PMI data also fell, overall it was better than Europe's.




After the data was released, the market's concerns about the risk of Europe falling into recession rose sharply, and expectations for the ECB's interest rate hike endpoint for the year also significantly declined, dragging down the euro.




Currently, the yield curves of government bonds in Europe and the United States have shown a significant inversion, exceeding the levels seen before the 2008 financial crisis, which is one of the indicators of an economic recession.






【Source: MacroMicro】




Mitrade Analyst：




Despite an unexpected 50 basis point interest rate hike by the Bank of England (BOE), the pound fell instead of rising due to increasing expectations of an economic recession, indicating that besides monetary policy, economic data strength and weakness is also a major variable affecting exchange rates. 




This week, focus will be on the Eurozone's June CPI and US May PCE data, as if there is a trend of inflation peaking, the euro may further decline.




Technically, the euro has lost its key support level of 1.09. If it cannot regain this level, the risk of further decline increases.






【Source：TradingView】







2.Continuous Depreciation of the Japanese Yen, What Will Be the Follow-up Trend?

Against the backdrop of a stronger US dollar, the Japanese yen depreciated by about 1.2% against the dollar last week. Currency policy differences continue to be the key variable driving the USD/JPY trend, with the Bank of Japan remaining persistently dovish while the Federal Reserve continues to be hawkish, increasing pressure on the yen to depreciate.




However, in the long term, the degree of yen depreciation is limited for two reasons.




First, Japan's inflation remains stubbornly high. Data released on June 23 showed that Japan's core CPI increased by 3.2% year-on-year in May, higher than the market's expected 3.1%, and "core-core" CPI (excluding fresh food and energy prices) rose by 4.3% year-on-year, once again setting a record since June 1981. The market's expectation of a shift in the Bank of Japan's monetary policy has increased.



【Source: MacroMicro】




Most Wall Street banks expect the Bank of Japan to raise its CPI forecast in July and gradually modify or abandon its yield curve control (YCC) policy.




Secondly, as the degree of yen depreciation deepens, there is an increasing possibility of intervention by Japanese authorities in the foreign exchange market. Referring to last year, Japan intervened in the foreign exchange market when the USD/JPY was near 146 yen. Although the Bank of Japan's tolerance for yen depreciation has increased, the possibility of foreign exchange intervention still exists if the yen depreciates rapidly.




Mitrade Analyst：




In the long term, the depreciation of the Japanese yen is limited, but in the short term, it may continue to weaken due to the dovish attitude of the Bank of Japan.




Technically, the USD/JPY is currently at 143.3, a key level at the upper limit of the 20-day moving average by 2%. If it fails to break through further this week, there is an increased risk of a downward correction.



【Source：TradingView】







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