Fundamental
Overview
The USD sold off across the
board on Friday following another soft NFP report, but regained some ground
this week. The dovish bets on the Fed increased and the market is now expecting
three rate cuts by year-end (68 bps). Moreover, we have also an 8% probability
of a 50 bps cut in September but that will likely happen only if we get a soft
CPI report today. In that case, the greenback could weaken further into the
FOMC meeting.
Overall, if one zooms out,
the US dollar continues to range although the dovish bets on the Fed keep
weighing on the currency. Part of that could be the fact that the bearish
positioning on the dollar could be overstretched and we might be at the peak of
the dovish pricing.
In fact, if the rate cuts
trigger stronger economic activity in the next months, the rate cuts in 2026
could be priced out and support the dollar. Nevertheless, the trend is still
skewed to the downside, and we might need strong data to reverse it.
On the JPY side, we haven’t
got meaningful changes in the fundamentals. Over the weekend, Japanese PM
Ishiba resigned and that weighed on the yen. We’ve also seen a very short rally
on Tuesday after a Bloomberg
report said that the BoJ was still on track to hike rates this year. Since
it wasn’t really new information, the yen gains were eventually quickly erased.
The yen has been rallying
mostly on the back of the dovish expectations for the Fed. For more JPY
appreciation we will need weak US data to increase the dovish bets on the Fed
or a series of higher inflation figures for Japan to price in more rate hikes
than currently expected.
USDJPY
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDJPY couldn’t extend the drop into the major trendline around the 145.50 level and
eventually bounced. If the price moves back into the major 148.50 resistance zone, we can expect the
sellers to step in with a defined risk above the resistance to position for a drop
into the trendline. The buyers, on the other hand, will look for a break higher
to increase the bullish bets into the 151.00 handle next.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that despite all the dovish catalysts we got for the US dollar, the pair
has been stuck in this range for over a month. Traders will likely continue to
play the range by buying at support and selling at resistance until we get a
breakout on either side.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we had a bit of a consolidation recently, but the price is now breaking
out of it. The buyers are likely to pile in on the break with a defined risk
below the minor resistance to target the 148.50 level. The sellers, on the
other hand, will want to see the price coming back inside the consolidation
range and break to the downside to extend the drop into the 146.60 support. The
red lines define the average daily range for today.
Upcoming
Catalysts
Today we get the US CPI report and the
latest US Jobless Claims figures. Tomorrow, we conclude the week with the University
of Michigan Consumer Sentiment report.
Watch the video below
This article was written by Giuseppe Dellamotta at investinglive.com.