Fundamental Overview
The USD rallied across the board last week after a slate of strong US data. The focus was mainly on Jobless Claims which beat expectations by a big margin with Initial Claims falling to the lowest level since July and Continuing Claims improving further. This triggered a hawkish repricing in interest rates expectations since the Fed started cutting rates solely due to weaker labour market data.
This means that if we continue to get stronger labour market data, the Fed could start turning more hawkish again and we might not get another cut in October, or more probably in December. Therefore, there’s still plenty of room for the US dollar to appreciate in case of strong data as the market’s pricing remains too dovish. The Fed projected 75 bps of easing by the end of 2026, while the market is still pricing 104 bps.
The greenback erased all the gains triggered by last week’s data in the meantime as we are likely experiencing a pullback after a very strong rally. Other possible reasons include the government shutdown fears and quarter-end flows.
On the JPY side, we haven’t got any meaningful change in fundamentals in the meantime. The BoJ kept interest rates unchanged as expected at the last meeting, but the market got surprised by two members voting for a rate hike. The yen initially rallied but once Governor Ueda started speaking, the gains began to fade and eventually got erased completely as Ueda downplayed the dissenting votes.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY broke above the key resistance zone around the 148.50 level and extended the rally into the 150.00 handle before pulling back into the resistance now turned support. This is where we can expect the buyers to step in with a defined risk below the support to position for a rally into the 151.00 handle next. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop into the major trendline around the 146.50 level.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the pullback into the previous resistance now turned support. There’s not much else we can add here as the buyers will look for a bounce and a rally into new highs, while the sellers will look for a break lower to target the major trendline.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor downward trendline defining the current pullback. The sellers will likely continue to lean on the trendline to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into the 151.00 handle. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the BoJ Summary of Opinions, the US Job Openings data and the US Consumer Confidence report. On Wednesday, we have the Japanese Tankan report, the US ADP and the US ISM Manufacturing PMI. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report and the US ISM Services PMI. Keep also an eye on Fed speakers.
