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Here Is What Drove USD/JPY Below 110

By Kathy LienForexJul 08, 2021 06:45PM ET
www.investing.com/analysis/here-is-what-drove-usdjpy-below-110-200590526
Here Is What Drove USD/JPY Below 110
By Kathy Lien   |  Jul 08, 2021 06:45PM ET
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Ask anyone and they will agree that economic activity in the U.S. is picking up, with businesses enjoying a much-needed post-pandemic recovery. The airports were packed when I travelled to and from Hawaii last week, with restaurants booked far in advance. The Federal Reserve recognizes this resurgence in demand, and based on the last central bank meeting minutes, a growing number of policy-makers think asset purchases need to be reduced sooner than anticipated.

Yet, USD/JPY dropped below 110 as U.S. stocks and Treasury yields declined because incoming data suggests that the recovery may be weaker than feared, and when extra unemployment benefits expire in September, demand could slow. Some will argue that allowing these benefits to expire will help fix labor shortage and allow some businesses to return to full capacity, but research from the American Economic Review shows definitively that spending falls further in households affected by job loss when unemployment benefits are cut off.

Between the unexpected uptick in jobless claims, weaker service sector activity and growing concerns about the delta COVID variant, investors are worried that even if the Fed is thinking about reducing asset purchases, the actual change will be months away. In the meantime, outbreaks in Asia, South Africa and Australia, along with relaxed mask requirements in the U.S. raises concerns about a similar resurgence in the U.S. In order for U.S. assets and the U.S. dollar to resume their rise we need a string of good data. Unfortunately, investors will have to wait until next week for that opportunity as no major U.S. economic reports are scheduled for release on Friday. Consumer prices are due on Tuesday, but given how much the Fed has downplayed price pressures, stronger CPI may not inspire much volatility. Thursday's Empire and Philadelphia Fed surveys and Friday’s retail sales reports, on the other hand, could be very market-moving.

The Canadian dollar will be on the move, with labor market numbers scheduled for release. After two months of job losses, Canada is expected to report a sharp rise in employment change. Economists predict 195,000 increase for June after 68,000 loss in May. This would be consistent with the uptick in the IVEY PMI index and rise in employment conditions. The jobless rate is also expected to fall from 8.2% to 7.7%. Canada is slowly easing restrictions and as this process continues, growth will accelerate. A good jobs number should put a halt to USD/CAD’s four-day rally.

Sterling, on the other hand, could extend its losses if U.K. data disappoints. Monthly GDP, the trade balance and industrial production numbers are due for release. Given the slowdown in manufacturing activity, the risk is to the downside for these reports. AUD and NZD were hit hard by risk aversion, with AUD particularly vulnerable as lockdowns get extended.

The best performing currency today was the euro, which bucked the trend to rise towards 1.1850 after the European Central Bank announced a new inflation goal. Previously, ITS goal was to see inflation “below but close to 2%.” Now, its official inflation goal will be 2%, with the allowance of temporary deviation above or below that level. It will also move to a “more narrative based” statement in lieu of its introductory statement.

Here Is What Drove USD/JPY Below 110
 

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Here Is What Drove USD/JPY Below 110

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Comments (15)
Linda noun
Linda noun Jul 11, 2021 1:14PM ET
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Luqman Firdaus
Luqman Firdaus Jul 09, 2021 8:25PM ET
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and the CV.Sakinah Anugerah Firdaus Mandiri (General Contractor & Supplier) 67%
Luqman Firdaus
Luqman Firdaus Jul 09, 2021 8:23PM ET
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ok love you $210
Saif ahad Ansary
Saif ahad Ansary Jul 09, 2021 11:48AM ET
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Great anylysis kathy, its always been helpful.
Elvis Igben
Elvis Igben Jul 09, 2021 1:39AM ET
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Thanks a lot
haniel amoah
haniel amoah Jul 09, 2021 12:34AM ET
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Great insight.
James Chen
James Chen Jul 08, 2021 11:55PM ET
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Thank you Kathy for the great analysis as usual
Rezuan Hamzah
Rezuan Hamzah Jul 08, 2021 11:02PM ET
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thank you
Rezuan Hamzah
Rezuan Hamzah Jul 08, 2021 11:02PM ET
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Ibrahim Zailani Ibrahim
Ibrahim Zailani Ibrahim Jul 08, 2021 8:46PM ET
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good news
Carl Raynor
Carl Raynor Jul 08, 2021 8:09PM ET
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I want my 74 k aswel
Forex Harbingers
Forex Harbingers Jul 08, 2021 8:09PM ET
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Here, let me simplify it for people. there is bearish divergence on weekly confirming, and UJ has not retested the 6 year downtrend breakout structure since rising to 112 which is the 105 structural area. Rule of advice, news is all for show. Money has been placed well ahead of schedule release. Dont fall for this pandering
Delta UFO
DeltaUFO Jul 08, 2021 7:59PM ET
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What drove US submarines to ran away  . . . me and my friends.
Todd Gray
Todd Gray Jul 08, 2021 7:17PM ET
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I stepped off a plane in Honolulu for a layover on a flight to Taipei. I wanted to turn around and get back inside the plane. 95 degrees farenheit and 94% humidity is not for me.
Tyrone Jackson
Tyrone Jackson Jul 08, 2021 7:17PM ET
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Hawaii is a winter destination. Had some Honolulu locals tell me long ago. Don’t come here in the summer, you won’t like it Winter is quite comfortable
Michael Feeney
Michael Feeney Jul 08, 2021 6:54PM ET
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Hawaii.. you were way too quiet ;) Thanks once again for your reporting, One wonders is taper talk premiture while jobless claims increased
 
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