Market Strategy This Week - May 28, 2024 (Tuesday)

Following the release of the May 1st FOMC minutes last Wednesday, opinions have increasingly leaned toward a delay in US rate cuts, causing the US dollar to strengthen. A view that USD/JPY will maintain its firmness has become dominant. In other words, USD/JPY is dependent on US interest rates. Despite Japan's 10-year yield exceeding 1% for the first time in 11 years, this has been ignored.

Therefore, this USD/JPY strength may continue through autumn. USD/JPY has continued to move higher gradually, moving from the mid-155 yen range into the 157 yen range. However, the improvement in the US composite PMI announced Thursday evening has also led to some selling pressure on the dollar.

The key focus this week is the PCE Core Deflator to be released Friday the 31st. Depending on this figure, USD/JPY could experience significant volatility. Also, will authorities intervene again at the 160 level?

Gold is bought when there is expectation of Fed rate cuts this year (= dollar weakness) and sold when rate cut expectations fade, showing sensitive reactions. Last week saw a sharp decline of $120 per ounce over Wednesday and Thursday. While gold's longer-term outlook remains bullish, this decline is technically as expected. We would like to wait for further declines.

WTI crude oil is awaiting the OPEC+ meeting at the end of this week. OPEC is quite bullish on global oil demand in 2024 at 2.25 million B/D of growth. If so, will they lower production cut levels? $80 per barrel may be the ceiling. From a medium to longer-term perspective, we see a downtrend continuing for another 3 weeks or so.

In summary: USD/JPY declines to 155 yen present buying opportunities with an upside target of 160 yen; Gold: buy on dips below $2200; Crude oil: looking for near-term selling opportunities.