Bears are gaining control of the USD/JPY at the start of the week.
On Wednesday, all eyes will be on the FOMC minutes.
At the time of writing, USD/JPY is down 0.1 percent on the day and trading below 111.00. So far, the pair has dipped between 111.19 and 110.79.
The pair is consolidating in North American vacation hours after hitting a low in London early afternoon as the greenback fell further.
After last week’s mixed bag of US labor data, Nonfarm Payrolls, the greenback is still hurting.
While the headline number exceeded expectations by a wide margin, the unemployment rate increased slightly while the workforce participation rate remained unchanged.
This has given investors the impression that, while there are signs of development, the inflation expectations that markets have priced in are not present.
As a result, investors believe the Federal Reserve can afford to delay tapering asset purchases or raising interest rates.
As a result of the report, bonds have climbed, stocks have risen, and the US currency has softened, at least in spot markets.
The market’s reaction to the data will be revealed in the following set of pointing data.
However, the CFTC statistics for the week ending June 29 showed yet another squeeze on short US dollar positions.
This was most likely tied to the post-June FOMC adjustments, which drove the bid due to a hawkish re-pricing of the Fed’s rate.
Meanwhile, the yen, which was already heavily oversold, experienced a significant increase in net shorts (more than 7% of open interest), putting it at -36 percent of open interest.
Given that the US data is unlikely to compel the Fed to accelerate its tapering, risk appetite is anticipated to rise, putting pressure on the yen.
“How the JPY performs against the USD in the coming weeks will be determined by how the Fed communicates its monetary policy,” Rabobank analysts suggest.
In this regard, the Federal Open Market Committee minutes will be issued on Wednesday, and it was at this meeting that the tapering negotiations officially began.
The minutes may provide some insight into the expected schedule.
The chairman of the Federal Reserve, Jerome Powell, claimed the meeting was “talking about talking about” tapering.
To markets, this suggests that the debate appears to be heating up, and data will most likely be the focus until the next meeting on July 27-28.
Raphael Bostic, President and CEO of the Federal Reserve Bank of Atlanta, is the only speaker planned for this week.
110.80 is a critical support level that is projected to hold, triggering the next wave of buying and sending the pair to new cycle highs in a new bullish daily impulse./n
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