FUNDAMENTAL OVERVIEW
USD:
The US Dollar weakened across the board yesterday despite the lack of catalysts. Most analysts blamed the report saying that China urged its banks to cut their exposure to US Treasuries. In such a case you would expect a negative reaction in bonds, but they finished the day higher. We did see a spike in the greenback following the report, but the real weakness started much later, so I wouldn’t say that was the catalyst.
This is just the continuation of the pullback triggered by some dovish repricing on last week’s stock market selloff and weak US Job Openings. Given the lack of catalysts, the market just kept on moving by inertia. Moreover, there might be noise ahead of the key US economic reports in the next days. The focus is on the US NFP report tomorrow as that will likely be pivotal for the US Dollar.
In fact, the market is pricing 58 bps of easing by the Fed this year, so there’s a high risk of a hawkish repricing in case the data comes out strong. In such a scenario, we will likely see the greenback rallying across the board.
On the other hand, a weak report should strengthen the case for more Fed easing and might even see traders bringing forward rate cut bets as some Fed members expressed scepticism about labour market stabilisation. In that case, the US Dollar will likely come under renewed pressure on dovish Fed bets.
JPY:
On the JPY side, nothing has changed other than PM Takaichi winning the lower house election as widely expected. We saw a classic “sell the fact” trade on the news with the JPY rallying across the board. In terms of monetary policy, the BoJ held interest rates steady as expected at the last policy meeting and upgraded slightly growth and inflation forecasts due to the expansionary fiscal policies.
Governor Ueda didn’t offer anything new in terms of forward guidance as he just repeated that they will keep raising rates if the economic outlook is realised. He also added that April price behaviour will be a factor to mull over a rate hike. This suggests that April is when they expect to deliver another rate hike if the data supports such a move. The data since the meeting hasn’t been supportive for a rate hike though as the Tokyo CPI eased further.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY dropped yesterday as we got the classic “sell the fact” trade on the widely expected Takaichi’s victory. The price is now trading right in the middle of the intervention level around the 159.00 and the major trendline. There’s not much we can glean from this timeframe, so we need to zoom in to see some more details.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see an upward trendline defining the bullish momentum. The buyers will likely step in around the trendline with a defined risk below it to position for a rally into the 159.00 handle. The sellers, on the other hand, will look for a break lower to pile in for a drop into the major trendline.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see a minor downward trendline defining the bearish momentum on this timeframe. The sellers will likely lean on the trendline with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 159.00 level next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the US December Retail Sales and the US Employment Cost Index data. Tomorrow, we have the US NFP report. On Thursday, we get the US Jobless Claims figures. On Friday, we conclude the week with the US CPI report.
