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Forex Market: USD/JPY extends gains as global growth concerns boost safe haven demand

USD/JPY extended gains from last Friday at the start of the new week, as investor concerns over global growth underpinned demand for safe haven assets.

Those concerns were reflected by disappointing Chinese macro data, released earlier on Monday. China’s retail and factory activity shrank sharply in April due to full or partial lockdowns imposed in major centres across the country, including the most populous city of Shanghai. China’s retail sales dropped 11.1% year-on-year in April, or at the steepest rate since March 2020, while industrial production shrank 2.9% year-on-year.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was inching up 0.02% to 104.484 on Monday. Last Friday the DXY climbed as high as 105.005, which has been its strongest level since December 2002.

“Persistent geopolitical tensions, ongoing global supply disruptions, a slowing Chinese economy and a hawkish Fed suggest that the USD should be stronger for longer,” HSBC global Forex research team wrote in an investor note.

Markets are now pricing in 50 basis point interest rate hikes at the Federal Reserve’s upcoming two policy meetings, but with certain possibility of sharper increases.

“There’s not much more guidance the Fed can give in light of the uncertainty on the inflation front, but they seem prepared to put out soothing words to rule out a 75 basis point rate hike,” Sim Moh Siong, a currency strategist at Bank of Singapore, was quoted as saying by Reuters.

The Japanese Yen, which is vulnerable to rising US bond yields, has managed to distance from last week’s over 20-year trough against the US Dollar, as global growth concerns have led to a pause in US Treasury yields’ surge.

As of 8:59 GMT on Monday USD/JPY was edging up 0.10% to trade at 129.380. Last week the major Forex pair climbed as high as 131.347, which has been its strongest level since April 16th 2002 (132.180).

USD/JPY has eased 0.37% so far in May, following a 6.74% gain in April.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 128.98
R1 – 129.72
R2 – 130.19
R3 – 130.92
R4 – 131.66

S1 – 128.51
S2 – 127.78
S3 – 127.30
S4 – 126.83

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