Fundamental
Overview
The USD sold off across the
board on Friday as Fed Chair Powell tilted more dovish by saying that “with
policy in restrictive territory, the baseline outlook and the shifting balance
of risks may warrant adjusting our policy stance.”
That saw traders firming up
expectations for a rate cut in September which now stands around 85% probability
with a total of 54 bps of easing by year-end. Overall, it’s not the repricing
in interest rates expectations that weighed on the greenback but hedges being
unwound.
Now, the focus turns to the
US NFP report next week which is going to be crucial and will influence greatly
interest rates expectations. Strong data might take the probability for a
September cut towards a 50/50 chance but will certainly see a more hawkish
repricing further down the curve. Soft data, on the other hand, will likely see
traders increasing the dovish bets with a third cut by year-end being priced
in.
On the JPY side, the
currency has been rallying 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. Another 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 rejected from the 148.50 resistance once again as the sellers piled in
more aggressively on the dovish tilt from Fed Chair Powell. The target for the
sellers should be the major upward trendline around the 145.50 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 that we’ve been stuck in a range for almost the entire month as traders have
been waiting for Fed Chair Powell and the key data releases in September. There’s
not much we can glean from this timeframe, so we need to zoom in to see some
more details.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a minor upward trendline defining the current pullback. The buyers
will likely continue to lean on it to keep pushing into the resistance, while
the sellers will look for a break lower to increase the bearish bets into new
lows. The red lines define the average daily range for today.
Upcoming
Catalysts
Tomorrow we have the US Consumer Confidence.
On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude
the week with the Tokyo CPI and the US PCE price index.
This article was written by Giuseppe Dellamotta at investinglive.com.