FUNDAMENTAL OVERVIEW
USD:
The US Dollar continues to rebound after the strong selloff experienced in the last couple of weeks of January. The greenback remains supported by improving US data and strong PMIs potentially hinting to stronger economic activity going forward. If the data continues to come out strong, traders will have to pare back their dovish Fed bets, and that’s going to boost the US Dollar further.
Next week is going to be a big one. In fact, we will get the US NFP report on Wednesday and the US CPI on Friday. The trend for the dollar is looking increasingly bullish, but traders will still look for confirmation from the data to gain more conviction.
JPY:
On the JPY side, nothing has changed. 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 Japanese Yen rallied just on the back of the “rate check” talks and intervention risks. This is now in the rear-view mirror and traders are piling back into shorts as the US Dollar strengthens on better data and expected Takaichi’s victory in the lower house elections this weekend.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY continues to rally towards the 159.00 handle where we got the strong verbal intervention and the talks of “rate checks” that eventually triggered a huge and quick selloff in the pair. If the price gets there, we can expect the sellers to step in with a defined risk above the highs to position for a drop into the major trendline. The buyers, on the other hand, will look for a break higher to increase the bullish bets into new cycle highs.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the price broke above the last week’s gap and continued higher as the buyers increased the bullish bets into the 159.00 handle. There’s not much else 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 bullish momentum. The buyers will likely continue to lean on the trendline with a defined risk below it to keep pushing into new highs, while the sellers will look for a break lower to pile in for a pullback into the 155.50 support. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the US Jobless Claims and Job Openings data. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment data. Over the weekend, we have the Japanese elections where the LDP is widely expected to win.
