Fundamental Overview
The USD had a mixed performance this week following the US inflation data where the Core CPI and Core PPI missed expectations. The greenback has been stronger against the commodity currencies but not as much against the EUR or GBP. After the initial boost from the CPI release, we can say that it just went sideways.
This might have to do with positioning since the “short US dollar” trade has recently become the most crowded trade and in such instances, it doesn’t take much to see strong unwinding. After all the data, the market pricing for the Fed went pretty much back to where we were at the beginning of the week.
On the JPY side, we haven’t seen much change in terms of fundamentals as the focus remains on the US-Japan trade negotiations. The BoJ is placing a great deal on trade developments and a positive outcome will likely give the JPY a strong boost as traders would bring forward expectations for a rate hike. The window to watch is between July 20 and August 1. On July 20, we have the Japanese upper house election and August 1 is Trump’s deadline for a deal.
The JPY might start to appreciate already from Monday morning onwards if the ruling bloc retains the majority in the upper house. The polls are suggesting that the ruling bloc is expected to lose the majority, which might have been the reason keeping the yen weaker going into the election. If the polls turn out to be wrong, we could see traders positioning long on the yen on expectations of a US-Japan deal and an earlier than currently expected rate hike.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY continues to consolidate right around the key 148.30 resistance. The buyers keep on piling in around these levels to position for a rally into the 151.20 level, while the sellers will need the price to fall below the 148.30 level to increase the bearish bets into the 142.35 support next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have an upward trendline defining the bullish momentum. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to position for a rally into the 151.20 level. The sellers, on the other hand, will look for a break below the trendline to increase the bearish bets into the 142.35 support.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the buyers will look for dip-buying opportunities around the trendline, while the sellers will look for a downside breakout to push into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the University of Michigan Consumer Sentiment survey. Over the weekend, we have the Japanese upper house election.
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