Continuous US-China summit and US long term interest rate outlook

Continuous US-China summit and USDJPY

Last week, following the results of the US-China summit on trade issues, market opened up with a gap upwards, but in the second half of last week the price dropped to 108 range and further dropped before the summit. The price eventually dropped to the level where it filled the gap. In June’s employment statistics, which attracted attention, the number of non-farm payroll employees was “224,000,” which exceeded the market forecast significantly, and the excessive rate cut for the US economy fell back. As a result, USDJPY went up to 108.64 and went to the middle of the 108 range towards last weekend.

US long term interest rate

A sharp drop in US long-term interest rates was a direct cause of the decline in USD, but the long-term interest is likely to settle by less than 2%. Although it rebounded to 2.03% level by the upswing of the number of employees last weekend, I think that it will be “a tug of war of 2%” from now. If that’s the case, USDJPY, which has a high correlation with US long-term interest rates, is expected to cut back slightly from the 107 yen, and to try the middle of the 106 yen level.

Bloomberg News on Monday morning had a headline such as “The interest cut off this month will not gonna happen due to employee rate’s positive result on June?” Now, I do not think that personally because the stock market, which has continued to rise on a daily basis from the expectation of a rate cut, and all three major indices have reached the all-time high, must be prepared for a considerable fall if the rate cut is overlooked. I don’t think the Fed will confuse the market so much, but it is worth seeing how the Mr. Powell mentions this point in 10th of July on this Wednesday.

Here, it is expected that he will suggest the future direction of the policy interest rate in the form of “forward guidance,” but the question is whether the content of the statement leads to a further rate cut in the future. I think “0.5% rate cut” which was expected in part is already another story. Also, President Trump has repeatedly been pressured to cut interest rates over and over again, and has again criticized on Sunday, stating “if the financial authorities know what they are doing, they will cut interest rates.” The parliamentary testimony also foresees questions about “FRB independence”, and also notes how the chairman responds.

USDJPY has been slightly distant in the 106 range, but upper price still weights continue. The realistic range would be between 107 – 109 yen. And the market direction apparently depends on what kind of development the future US long-term interest rate shows.

EURUSD outlook

Also, last week the EURUSD rebounded and put it on the rate of 1.14, but it eventually dropped back without breaking the resistance at around 1.1430-40. It would have been possible to raise another level if the price could go above that level, but actually it dropped to a level to test the 1.12 level again. We also expect the price to remain in the range of 1.1150 to 1.140, as the lower price seems to be fairly solid.