Japanese Yen nears critical 160.00 level as Japan’s 10-year rate hits 1%

• The Japanese Yen softens further, flirting with a break above 160.00.
• With pressure building to the upside in USD/JPY, the risk of a hard correction grows.
• The US Dollar Index pops higher after some hawkish Fed comments. 

The Japanese Yen (JPY) weakens again on Wednesday in a near 10-day losing streak that only had one hiccup on the way up. Traders are dipping their toes in the water to see if the Japanese Ministry of Finance is set to intervene in forex markets. Meanwhile, the Bank of Japan is still unclear on when, how and if it will cut its debt-buying program. 

Meanwhile, the DXY US Dollar Index – which gauges the value of the US Dollar (USD) against a basket of six foreign currencies – is stronger with the help from the depreciation of the Japanese Yen. The other heavyweight in the basket, the Euro, is not helping either as uncertainty builds up ahead of the French snap elections on Sunday and German consumer confidence deteriorates further. This gives the DXY a boost from outside help even though the Greenback looks overvalued seeing recent economic data. 

Daily digest market movers: Empty calendar ahead

• Gareth Berry, the FX and Rates strategist from Macquarie, is expecting the USD/JPY pair to fall to 120.00. This squeeze lower is expected to happen in the next 18 months, Bloomberg reports. 
• Head of sales and trading business at Mitsubishi UFJ Trust and Banking Corporation Takafumi Onodera noted that the Japanese authorities will not intervene until Friday’s US Personal Consumption Expenditures (PCE) print. A stronger-than-expected report could spur volatility and send the Yen hurtling toward 163.00 against the US Dollar, spurring officials to make a “rate check” or intervene during a period of thin liquidity. Rate checks warn traders that authorities may be preparing to step in to support the Yen. 
• At 11:00 GMT, the Mortgage Bankers Association (MBA) will release the weekly Mortgage Application numbers for the week ending on June 21. Mortgage applications rose by 0.9% the previous week.
• At 14:00 GMT, New Home Sales data for May will come out. Analysts expect sales to increase slightly to 640,000 from April’s 634,000. 
• The US Treasury will allot a 5-year Note in the markets at 17:00 GMT. 
• The Federal Reserve’s Bank Stress Test report will come out at 20:30 GMT. 
• Equities are recovering after Nvidia (NVDA) was able to eke out gains on Tuesday at the US closing bell. The main indices in Asia are all in the green, and even the Dax and the pan-European index, Euro Stoxx 50, are recovering. US futures are rather mixed, with the Dow Jones Industrial futures in the red against Nasdaq futures in the green, and the S&P 500 caught in the middle. 
• The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Fed officials. The odds now stand at 57.9% for a 25-basis-point cut. A rate pause stands at a 35.9% chance, while a 50-basis-point rate cut has a slim 6.2% possibility. 
• The Overnight indexed Swap curve for Japan shows a 56.6% chance for a rate hike on July 31, and a smaller 49.6% chance for a hike on September 20. 
• The US 10-year benchmark rate trades near the weekly high at 4.27%.
• The benchmark 10-year Japan Treasury Note (JGB) trades around 1.023%, breaking above 1% for the first time since June. 

USD/JPY Technical Analysis: Everyone looking in the same direction

The USD/JPY pair is flashing red warning lights as price action overheats too much. The best evidence is the Relative Strength Index (RSI), which is close to overbought conditions in the daily chart, while the magic 160.00 level, where Japanese authorities intervened last time, is very near. Do not expect a snap reaction immediately, as authorities will want to see if US data on Thursday and Friday could trigger some easing without sticking their neck out and intervening. At max, 163.00 on the upside could be tested on stronger US data in the coming days, while on the downside, that 151.95 level is again the pivotal support to watch.