Fundamental Overview
The USD yesterday weakened across the board on the Fed’s decision but eventually erased all the losses and increased the gains as traders digested all the information and realised it was more hawkish compared to the market pricing.
In fact, the dot plot showed that the FOMC projected two more rate cuts for 2025 by a narrow majority, with the rest of officials expecting just one more or even none. Moreover, the Fed projected just one cut in 2026 compared to three that the market was pricing before the decision.
Fed Chair Powell then labelled the rate cut as a “risk management” action given the weakening in the labour market data. But overall, he sounded pretty neutral even though he understandably placed more emphasis on the labour market given the two consecutive soft NFP reports.
Looking forward, it’s going to be all about the data. Strong data will likely trigger a hawkish repricing in interest rates expectations and support the greenback. On the other hand, weak data will likely continue to weigh on 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. Tomorrow, we have the BoJ decision where the central bank is expected to keep everything unchanged and the focus will be on their forward guidance.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY eventually broke out of the range to the downside and dropped into the major trendline around the 145.60 level. The buyers stepped 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 want to see the price breaking below the trendline to pile in for a drop into the 143.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we now have a minor downward trendline defining the bearish momentum. The sellers are likely to lean on the trendline with a defined risk above it to position for a drop into the major upward trendline targeting a breakout. 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 – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here but if we get a pullback from the downward trendline, we can expect the buyers to step in around the minor support zone at 146.70 to position for a break above the trendline, while the sellers will look for a break lower to increase the bearish bets into the major upward trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the latest US Jobless Claims figures, while tomorrow we conclude the week with the Japanese CPI and the BoJ policy decision.
