Fundamental Overview
The USD sold off across the board on Friday following another soft NFP report, but regained some ground this week. The dovish bets on the Fed increased and the market is now expecting three rate cuts by year-end (68 bps). Moreover, we have also an 8% probability of a 50 bps cut in September but that will likely happen only if we get a soft CPI report today. In that case, the greenback could weaken further into the FOMC meeting.
Overall, if one zooms out, the US dollar continues to range although the dovish bets on the Fed keep weighing on the currency. Part of that could be the fact that the bearish positioning on the dollar could be overstretched and we might be at the peak of the dovish pricing.
In fact, if the rate cuts trigger stronger economic activity in the next months, the rate cuts in 2026 could be priced out and support the dollar. Nevertheless, the trend is still skewed to the downside, and we might need strong data to reverse it.
On the JPY side, we haven’t got meaningful changes in the fundamentals. Over the weekend, Japanese PM Ishiba resigned and that weighed on the yen. We’ve also seen a very short rally on Tuesday after a Bloomberg report said that the BoJ was still on track to hike rates this year. Since it wasn’t really new information, the yen gains were eventually quickly erased.
The yen has been rallying mostly on the back of the dovish expectations for the Fed. For more JPY appreciation we will need weak US data to increase the dovish bets on the Fed or a series of higher inflation figures for Japan to price in more rate hikes than currently expected.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY couldn’t extend the drop into the major trendline around the 145.50 level and eventually bounced. If the price moves back into the major 148.50 resistance zone, we can expect the sellers to step in with a defined risk above the resistance to position for a drop into the trendline. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 151.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that despite all the dovish catalysts we got for the US dollar, the pair has been stuck in this range for over a month. Traders will likely continue to play the range by buying at support and selling at resistance until we get a breakout on either side.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a bit of a consolidation recently, but the price is now breaking out of it. The buyers are likely to pile in on the break with a defined risk below the minor resistance to target the 148.50 level. The sellers, on the other hand, will want to see the price coming back inside the consolidation range and break to the downside to extend the drop into the 146.60 support. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US CPI report and the latest US Jobless Claims figures. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment report.
