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31.07.2019 01:14 PM
Analysis of USD/JPY for July 31, 2019
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The USD/JPY pair corrected at the edge of the 108.50 area after retreating from 109.00. Even though USD has strengthened recently, it is likely to give in to JPY today if the Federal Reserve will reduce its interest rate.

The US regulator is almost certain to cut interest rates for the first time in more than a decade today, which is expected to deliver a mild shake to an economy that is facing headwinds from trade disputes and a global slowdown. The widely expected quarter-percentage-point lowering of borrowing costs, however, is unlikely to assuage U.S. President Donald Trump's increasingly strident demands for the central bank to ease monetary policy. Fed officials hope a modest rate cut will lower the odds of a recession by helping to boost tame inflation at home and offset risks from slowing growth abroad and rising tensions with trading partners like China. Uncertainty toward the timing and scope of additional action leaves markets more sensitive to signals of future policy measures than the well-telegraphed rate cut looming at present. Policymakers would be wise to take advantage of recent upbeat economic data to outline the parameters for a modest recalibration of rates in order to avoid getting pressured into a more pronounced easing.

Today the US ADP Non-Farm Employment Change report is expected to show an increase to 150k people from the previous figure of 102k people, and the Employment Cost Index is anticipated to remain unchanged at 0.7%. Ahead of NFP on Friday which is forecast to have a dovish result with a decrease to 163k from the previous figure of 224k, today FED is expected to cut its rate to 2.25% from the previous value of 2.50%.

On the JPY side, Japan pushed back projections today for bringing its budget into surplus, in a sign Prime Minister Shinzo Abe's government is struggling to rein in massive public debt as the economy comes under increasing pressure. The government pushed back its forecast of achieving a surplus by one year to fiscal 2027, citing a downward revision to its outlook for GDP growth, inflation and tax revenue since its previous projections in January. Japan's debt burden is the industrial world's heaviest, at more than twice the size of its $5 trillion economy. Abe has put greater importance on growth to safeguard the fragile economy than fiscal reform. Recently, Japan has cut its fiscal 2019 real GDP growth forecast to 0.9% from 1.3% which had an inverse impact on the national currency. This fiscal year's budget spending reached a record 101.5 trillion yen ($935.05 billion) including 2 trillion yen in steps to ease pain from a planned sales tax hike to 10% from the current 8% in October.

Today Japan's Consumer Confidence report reflected a decrease to 37.8 from 38.7, while the index was estimated to slide to 38.5. Housing Starts increased to 0.3% from the previous negative value of -8.7%, while it was forecast to be at -2.2%.

As for the current scenario, the US dollar may weaken amid dovish expectations, while the yen is pressed down by the country's economic issues and may not get strong enough against the greenback. Even though the pair is likely to resume a clear bearish trend, the question is how long it will continue.

TECHNICAL OVERVIEW:

The pair is trading at the edge of the 108.50 area without any clear trend. The price formed the Double Top pattern together with the Bearish Divergence signaling further downward pressure towards the 107.00 support area in the coming days. As far as the price remains below 110.00 with a daily close, the bearish bias is anticipated to continue.

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