Fundamental Overview
The USD finished last week at the lows despite the lack of meaningful catalysts. Overall, it just maintained the bearish bias triggered by Powell’s dovish tilt at the Jackson Hole Symposium.
This week, traders will be focused on the US labour market data, culminating in the NFP report on Friday. In fact, the data will influence interest rates expectations greatly. Right now, the market is pricing an 89% probability of a rate cut in September and a total of 55 bps of easing by year-end.
Strong data might take the probability for a September cut towards a 50/50 chance but will certainly see a more hawkish repricing further down the curve and likely support the dollar. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in and weighing on the greenback.
On the JPY side, the currency has been rallying 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 continues to range below the major 148.50 resistance zone. If we get a drop into 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 increase the bearish bets into the 142.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been stuck in a range for the entire month as traders have been waiting for the key US data before picking a direction. There’s not much we can glean from this timeframe, as market participants will likely continue to play the range until we get a breakout on either side.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we might be forming a smaller range around the support. If we get a break above the minor 147.40 resistance, we can expect the buyers to pile in to extend the rally into the 148.50 resistance next. The sellers, on the other hand, will want to see the price breaking below the support to extend the drop into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the US ISM Manufacturing PMI. On Wednesday, we have the US Job Openings data. On Thursday, we get the US ADP, the latest US Jobless Claims figures and the US ISM Services PMI. On Friday, we conclude the week with the Japanese Wage Growth data and the US NFP report.
