Fundamental Overview
The USD came under renewed pressure last Thursday following an in-line US CPI report and surprisingly weak initial jobless claims. The jobless claims data stole the show as initial claims jumped to a new cycle high and the highest level since 2021.
On further analysis, the claims data might have been just a blip as it was negatively skewed by an unusually large spike in Texas. Nevertheless, the data kept the weakening labour market narrative intact and therefore solidified the expectations for three rate cuts by year-end.
Overall, if one zooms out, the US dollar has been mostly rangebound even though the dovish bets on the Fed kept 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. 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.
On Friday, we have the BoJ policy decision where the central bank is expected to keep interest rates unchanged. The focus will be on forward guidance and whether the central bank will hint to an imminent rate hike or signals more than the two rate hikes priced in by the market by the end of 2026.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY remains stuck in the same old range as market participants are now waiting for the FOMC and BoJ decisions to try to break free. If the price drops to the major trendline, we can expect the buyers to step in with a defined risk below the trendline to position for a rally into the 151.00 handle. The sellers, on the other hand, will look for a break lower to extend the drop into the 140.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the rangebound price action that has been going on since the beginning of August. Despite all the dovish catalysts we got for the US dollar, the pair couldn’t break free. 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, there’s not much we can glean from this timeframe as the choppy price action in the middle of the range doesn’t give clear levels where to lean onto. On an intraday basis, the break above the 147.77 swing level could see the buyers extending the momentum into the 148.50 resistance. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the US Retail Sales data. On Wednesday, we have the FOMC policy announcement. On Thursday, we get the lates US Jobless Claims figures. On Friday, we conclude the week with the Japanese CPI and the BoJ policy decision. Keep also an eye on WSJ’s Timiraos as he could signal a 50 bps cut in his Fed preview.
