FUNDAMENTAL OVERVIEW
USD:
The US dollar is now trading higher against most major currencies after another slate of strong US data this week and the US-Iran tensions potentially supporting the greenback. The market is still pricing 57 bps of easing by year-end but the crowded bearish positioning on the US dollar requires strong reasons for the greenback to keep falling.
There’s no such reason right now as we are seeing the US data surprising to the upside. Fed speakers are also sounding like the bar for further cuts was set high and they would need very clear improvement on the inflation side to consider a rate cut.
Today, we get the Flash US PMIs and the US Q4 GDP. The greenback might get another boost from strong data, especially on the PMIs front. We have also the potential US Supreme Court decision on Trump’s tariffs. If the Court were to rule against the tariffs, we might see the US dollar weakening on positive global growth expectations.
JPY:
On the JPY side, we’ve seen a big “sell the fact” trade following the widely expected Takaichi’s victory in the lower house elections, but other than that, nothing has changed. In fact, the data hasn’t been supporting urgent rate hikes as seen also today with further easing in the Japanese CPI.
As a reminder, 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 market is fully pricing the next hike in June with a total of 51 bps of tightening seen by year-end (two rate hikes).
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY extended the gains after bouncing near the January’s low and the major trendline. We might be forming a descending triangle with the neckline around the 152.00 handle. The sellers will likely lean on the downward trendline with a defined risk above it to position for a drop back into the 152.00 support. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 159.00 handle next.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the price broke out of the tight range on Wednesday and the bullish momentum increased as more buyers piled in on the breakout. We have a bullish structure on this timeframe, so barring major fundamental events, the buyers should remain in control at least until the downward trendline.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a support zone around the 154.60 level where there’s also the upward trendline for confluence. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to position for a break above the downward trendline. The sellers, on the other hand, will look for a break lower to extend the drop into the 153.70 level next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the US Q4 GDP, the US PCE price index for December, the US Flash PMIs and the potential US Supreme Court decision on Trump’s tariffs.
