Fundamental Overview
The USD has been weakening across the board since Tuesday when some comments from USTR Greer suggested that de-escalation was still the base case. The fall in Treasury yields has also been a bearish driver for the greenback as the dovish interest rate expectations increased.
Domestically, nothing has changed for the US dollar as 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 likely to keep weighing on the greenback.
The BLS announced last week that despite the shutdown, it will release the US CPI report on October 24, so that’s going to be a key risk event. That will need to be seen in the context of US-China relations at that time though. If things go south on that front, then the CPI will not matter much as growth fears will trump everything else.
On the JPY side, the currency strengthened last Friday following the risk-off sentiment triggered by the US-China escalation. Domestically, Takaichi is having some trouble securing enough votes to become the next Prime Minister after the loss of Komeito support. This has also been a minor driver of yen strength. On the monetary policy side, nothing has changed. Traders are assigning just a 22% probability of a rate hike at the October meeting given the political uncertainty and 41% chance of a rate hike by year-end.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY probed below the major support zone around the 151.00 handle but it’s now coming back above it. This is where we can expect the buyers to step in with a defined risk below the recent low to position for a rally into the 154.80 level. The sellers, on the other hand, will want to see the price falling back below the support to pile in for a drop into the 148.50 support 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. If we get a pullback into it, we can expect the sellers to lean on the trendline with a defined risk above it to position for a drop into the 148.50 support. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 154.80 level next.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another minor downward trendline that could act as resistance. The sellers will likely lean on it to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into the next trendline. The red lines define the average daily range for today.
Upcoming Catalysts
We don’t have anything on the data front for the rest of the week with the focus remaining solely on US-China headlines.
