What’s next? – USDJPY 01.06.17

USDJPY

The US dollar was trading higher on Thursday as the political turmoil targeting the Trump administration eased, while investors awaited for fresh economic data to set the tone ahead of the Federal Reserve June monetary policy meeting.

Traders are now looking ahead of employment data on Friday, which is expected to make an impact on expectations for an interest rate increase at this month’s gathering.

According to CME Group’s FedWatch tool, traders are currently pricing in a 91.2 percent chance of a rate hike later in June, up from nearly 70 percent registered only two weeks ago.

The American currency remains under pressure due to an ongoing investigation into President Donald Trump’s alleged ties to Moscow and potential influence of the Russian government into the November presidential elections in support to the Trump campaign.

The USDJPY is now holding above the 111.00 mark, gaining upward momentum amid improved market sentiment and a stronger demand for risky assets. The yen is considered a safe-haven assets and its demand goes down in periods of stability.

The renewed interest in the greenback, which is now pushing the USDJPY higher, can be related to rising treasury yields, boosted by comments from John Williams, president of the Federal Reserve Bank of San Francisco.

In prepared remarks Williams said that “the US economy is about as close to the Fed’s dual mandate goals as we have ever been, [...] With the attainment of our dual mandate goals close at hand, it’s more important than ever for monetary policy to work toward what I like to call a ‘Goldilocks economy’ — an economy that doesn’t run too hot or too cold.”

The upside movement could be extended if US employment data builds a stronger case for the Federal Reserve to increase rates this month, which is seen as a bullish signal for the dollar.

From a technical view, momentum indicators do not provide with strong signals and a negative reversion wouldn’t be a total surprise for investors. The 111.00 is not offering enough support to keep up with the bullish trend, making almost certain a retracement to 110.45 - 110.55. A developing increase would move the pair to 111.22 and 111.82 in extension.