Fundamental Overview
The USD came under some
pressure on Friday as the risk-off sentiment caused by Trump’s threat of
substantially increasing tariffs on China weighed on Treasury yields. Over the
weekend, we had more soothing comments from Trump and other US officials which
triggered a recovery in risk sentiment.
The positive mood weighed a
bit on the greenback but eventually the risk mood deteriorated again as US
Treasury Secretary Bessent poured some cold water on the weekend hype and the
Chinese imposed special port fees on US related vessels as countermeasures
against the US previous port fees.
Domestically, nothing has
changed for the US dollar as the US government shutdown continues to delay many
key US economic reports. The dollar “repricing trade” needs strong US data to
keep going, especially on the labour market side, so any hiccup on that front
is likely to keep weighing on the greenback.
The market pricing shifted
more dovish after the latest US-China escalation with 48 bps of easing by
year-end and 122 bps cumulatively by the end of 2026. The BLS announced last
week that despite the shutdown, it will release the US CPI report on October 24,
so that’s going to be a key risk event.
In case we get hot data, we
will likely see a hawkish repricing in interest rates expectations with the
December cut being priced out. Conversely, a soft report shouldn’t change much
in terms of pricing, but it will likely weigh on the greenback anyway. This
will of course be taken in context of the US-China relations by then.
On the JPY side, the
currency strengthened following the risk-off sentiment triggered by the US-China
escalation. Domestically, Takaichi is having some trouble securing enough votes
to become the next Prime Minister after the loss of Komeito support. The voting
is expected to take place next week. On the monetary policy side, nothing has
changed. Traders are assigning just a 18% probability of a rate hike at the
October meeting given the political uncertainty and 33% chance of a rate hike
by year-end.
USDJPY
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDJPY eventually rejected the top trendline around the 153.00 handle
and pulled back into the support zone around the 151.00 handle. There’s not
much else we can see here but the buyers will likely continue to step in around
the support, while the sellers will look for shorts around the top trendline.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see more clearly the recent price action with the pullback into the support
zone and the bounce following the positive weekend comments from Trump and
other US officials. Bessent’s comments and the Chinese countermeasures triggered
some risk-off again.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a minor resistance zone around the 152.50 level. This is where
we can expect the sellers to step in with a defined risk above the zone to
position for a break below the 151.00 support. The buyers, on the other hand,
will look for upside breakouts to target new highs. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have Fed Chair Powell speaking
although he’s unlikely to change his stance given that we haven’t got anything new
on the data front. For now, we know that only the US CPI will be published
despite the shutdown, which is scheduled for Friday October 24.
This article was written by Giuseppe Dellamotta at investinglive.com.