FUNDAMENTAL OVERVIEW
USD:
The US Dollar rebounded in the final part of last week with analysts pointing to the nomination of Kevin Warsh as the next Fed chair as the main catalyst. The reality is that the strong selloff in the greenback wasn’t backed by fundamentals in the first place. The greenback didn’t have strong reasons to appreciate, but there wasn’t a reason for a strong selloff either.
The US data continues to improve, especially on the labour market side as the US Jobless Claims suggest a re-acceleration in activity. Yesterday’s US ISM Manufacturing PMI beat expectations by a big margin with the new orders index jumping to the best levels since 2022. February might be the month when the US Dollar comes back with a vengeance if we keep getting strong data.
The NFP report is certainly the main highlight although it got delayed due to the partial shutdown. Nonetheless, we will get many other top tier data that could give the greenback a boost like the US ADP and the ISM Services PMI.
The market is pricing 48 bps of easing by year-end and those bets will be pared back in case the data strengthens. Conversely, if the data comes out softer than expected, then we could see the US Dollar coming back under pressure, although the momentum shouldn’t be as strong as we’ve seen in January.
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 risk. This is now in the rear-view mirror and traders are piling back into shorts as the US Dollar strengthens on better data. If this continues, we should see the USD/JPY rate back around 159.00 in a few weeks.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY broke above the 154.50 resistance zone and extended the gains as the buyers piled in with more conviction to target the 159.00 handle. If we get a retest of the resistance now turned support, we can expect the buyers to step in with a defined risk below the support to position for new highs. The sellers, on the other hand, will want to see the price falling back below the support to target the major trendline.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we finally closed last week’s gap and the price is breaking above it. This is where we can expect the buyers to pile in with a defined risk below the gap zone to keep pushing into new highs. The sellers, on the other hand, will want to see the price falling back below the zone to position for a drop back into the support.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that the recent price action might have formed a rising wedge. This might signal a loss of momentum and an imminent correction. The buyers will likely lean on the bottom trendline to keep pushing into new highs, but if we get a break lower, the sellers will likely regain control and take us back to the 154.50 support. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the US ADP and the US ISM Services PMI. On Thursday, we get the US Jobless Claims figures. On Friday, we conclude the week with the University of Michigan Consumer Sentiment data. On Sunday, we have the Japanese lower house election where the LDP party is expected to win.
