Fundamental
Overview
The USD has been weak
almost across the board since the NFP report as the softer than expected data
triggered a quick dovish repricing and a change in stance for many Fed members.
The market pricing 58 bps
of easing by year-end compared to just 35 bps before the NFP release. It’s
highly likely that more benign data will see Fed Chair Powell opening the door
for a cut in September at the Jackson Hole Symposium.
The focus now turned to the
US CPI report due tomorrow. The recent Fedspeak suggests that a rate cut in
September might be unavoidable, so we might need very hot inflation data to
change their mind (and of course a good NFP report in September).
On the JPY side, the
currency rallied strongly on the back of the soft NFP report and the dovish
repricing for the Fed. For more JPY appreciation we will need weak US data to
increase the dovish bets on the Fed or higher inflation figures for Japan to
price in more rate hikes than currently expected. Other potential positive
driver could be signs of more fiscal support as that will likely put upward
pressure on inflation.
USDJPY
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDJPY got stuck in a consolidation ever since the NFP selloff. Traders
are now waiting for the US CPI release before picking a direction. For the
sellers, the target remains the major trendline around the 144.50 level. If the
price gets there, we can expect the buyers to step in with a defined risk below
the trendline to position for a rally back into the resistance.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see more clearly the consolidation that started soon after the NFP-induced
drop. The most recent swing high around the 148.00 handle should act as
resistance. The buyers will want to see the price breaking higher to pile in
for a rally back into the 151.00 handle. The sellers, on the other hand, will
likely step in around the 148.00 level to extend the drop into the major
trendline.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, there’s
not much else we can add here as traders will likely continue to play the range
until we get a breakout on either side. In any case, waiting for the CPI
release would be a better idea from a risk management perspective. The red
lines define the average daily range for today.
Upcoming
Catalysts
Tomorrow we have the US CPI report. On
Thursday, we get the US PPI and the US Jobless Claims figures. On Friday, we
conclude the week with the US Retail Sales and the University of Michigan
Consumer Sentiment report. Focus also on Fedspeak, especially after the US CPI
data.
Watch the video below
This article was written by Giuseppe Dellamotta at investinglive.com.