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USD/JPY Technical Analysis: Fed Determines the Fate – 17 August 2022


Since the start of trading this week, the bulls have been trying to control the performance of the USD/JPY currency pair. The rebound gains stopped at the 134.68 resistance level, until the markets and investors interacted with the announcement of the minutes of the last meeting of the US Federal Reserve. It will give a clearer picture of the future of raising US interest rates.

Economic Outlook

A report from the Federal Reserve showed that US industrial production increased more than expected in July. The Federal Reserve said industrial production rose 0.6 percent in July after an unchanged revised reading in June. Economists had expected industrial production to rise 0.3 percent, compared to a 0.2 percent decline originally reported from the previous month.

The larger-than-expected increase in industrial production came with industrial production advancing 0.7 percent in July after declining 0.4 percent for two consecutive months. Mining production also rose 0.7 percent in July after jumping 2.0 percent in June, while utility production fell 0.8 percent after declining 0.3 percent. The report also showed that capacity utilization in the industrial sector rose to 80.3 percent in July from a revised 79.9 percent in June. Economists had expected capacity utilization to come to 80.1 percent from originally 80.0 percent from the previous month.


US Housing Market

New residential construction in the United States fell much more than expected in July, according to a report from the Commerce Department. The report showed that homes started fell 9.6 percent to an annual rate of 1.446 million in July after falling 2.4 percent to an average of 1.559 million in June. Economists had expected housing starts to fall 1.2 percent to a rate of 1.540 million.

With the decline sharper than expected, new homes reached their lowest annual rate since they reached 1.430 million in February of 2021. The Commerce Department said single-family homes fell 10.1% to 916,000, while multi-family starts fell 8.6%. to 530,000. Building permits, an indicator of future housing demand, also fell 1.3 percent to an annual rate of 1.674 million after rising 0.1 percent to a revised rate of 1.696 million in June.

Economists had expected building permits to decline 2.1% to an annual rate of 1.650 million from 1.685 million originally reported for the previous month. Single-family permits fell 4.3 percent to 928,000, which more than offsets a 2.8 percent jump in multi-family permits to 746,000.

USD/JPY Technical Outlook:

The recent gains in the USD/JPY currency pair moved the direction of the technical indicators to the upside. If the US retail numbers come today and the content of the minutes of the last meeting of the US Federal Reserve is in favor of the bank’s tightening path, the bulls may have the momentum of more launch to higher and closer levels.

The resistance for the currency pair is currently 135.60, 136.30 and 137.40, respectively, and the last level is pushing the technical indicators towards overbought levels. The pair’s current direction may change if it moves towards the support levels 132.50 and 131.00, respectively. We prefer buying the pair from every bearish level.

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