Fundamental Overview
The USD strengthened a bit on Friday following some positive Trump’s comments on China as Treasury yields bounced and erased the Thursday’s losses. Overall, the US dollar performance has been mixed as markets have been driven by quick changes in risk sentiment since Trump’s tariffs threat.
On the domestic side, 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 weighing on the greenback.
The BLS will release the US CPI report on Friday despite the shutdown, so that’s going to be a key risk event. That will need to be seen in the context of US-China relations and any negative shock by that time though. If things go south, then the CPI will not matter much as growth fears will trump everything else.
On the JPY side, the currency strengthened recently on the risk-off sentiment that got triggered by Trump’s tariffs threat. Domestically, the LDP party agreed to form a coalition with the Ishin party paving the way for Takaichi to become Prime Minister. On the monetary policy side, nothing has changed with traders assigning just a 23% probability of a rate hike at the October meeting and 45% chance of a rate hike by year-end.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY broke below the major support zone around the 151.00 handle and extended the drop into the 149.38 level. We just got a pullback, so we can expect the sellers to step in on the retest of the support now turned resistance and position for a fall into the 148.50 support next. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and pile in for a rally into the 153.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a downward trendline defining the bearish momentum right around the major resistance zone. Again, this is where we can expect the sellers to step in to target new lows, while the buyers will look for a break higher to pile in for a rally into the top trendline.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we already got a rejection from the resistance. If the price breaks below the most recent swing low at 150.34, we can expect the sellers to increase the bearish bets into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
The focus remains on the US-China developments but on Friday we will also get the US CPI report and the US flash PMIs.
