The calm before the storm... Two reasons why the USD/JPY is completely stuck around 161.80 yen
The recent USD/JPY really has been “not moving”, hasn’t it?
In the face of the 1 dollar = 162 yen milestone, which is a level not seen in about 40 years, price action has completely stalled and the market has entered a stalemate.
“Will it break through, or will there be a big plunge…?”
Actually, there are two enormous barriers that have the market boxed in, which is why USD/JPY isn’t moving much right now.
Tonight (June 26 at 21:30) we also have the week’s biggest event on the docket: the release of the USPCE deflator. I’ll give a simple, easy-to-understand explanation of the current calm before the storm for beginners!
1. Why no movement? The two barriers surrounding the market
USD/JPY is currently squeezed by strong factors on both the upside and the downside.
① Upside barrier: “intervention vigilance” just before 162 yen
The main reason is this. Once it breaks into the 162 yen level, stealth intervention (yen buying) by the government (Ministry of Finance and Bank of Japan) could come at any moment.
If intervention occurs, there is a risk of an instant fall of several hundred pips (a few yen), so buyers are forced to take profits near the 161.8–161.9 yen area, preventing further upside.
② Downside barrier: the floor for the dollar (expectations of US rate hikes)
On the other hand, it’s not so easy for it to go down just because that is expected.
Stronger-than-expected US GDP numbers released yesterday and hawkish statements from Federal Reserve officials suggesting rate hikes could come within the year have kept the belief strong that US high rates will continue, so buy orders pile up at the lower levels and the downside remains quite firm.
2. Will energy explode after 21:30 tonight with the US PCE deflator?
What could break this stalemate (the energy is accumulating) is tonight’s 21:30 release of the US PCE deflator.
This is the inflation indicator that the US Federal Reserve places greatest emphasis on when deciding policy rates. The results here can significantly alter future scenarios.
【If the numbers come in stronger than expected】
US inflation persistence is likely to be priced in, and there is a possibility of forceful attempts to break the 162 yen barrier, ignoring intervention risk.
【If the numbers come in weaker than expected】
Profit-taking from the previous uptrend could surge, with a scenario of rapid declines toward the low 161 yen area or into the 160s.
(Summary)
As the London market gains momentum in the late afternoon and just before the data release, a wait-and-see stance tends to strengthen to fully assess the results, possibly leading to even slower price action.
Rather than forcing positions and risking a big hit, this is a moment to clearly observe where energy is likely to flow and how the results and market reaction unfold.
Prepare for extreme moves after 21:30 tonight, and manage positions more carefully than usual.