Fundamental Overview
The USD started the week on a positive note as the risk of a hawkish Powell has been keeping the markets on edge. We’ve also seen some downside in equities without any fundamental catalyst, which might indicate some profit-taking and hedging into the Jackson Hole event.
The recent data shouldn’t give Powell any conviction to pre-commit to a rate cut in September as the Jobless Claims data continued to improve and the inflation readings have increased further, so the NFP report in September is going to be crucial. The market trimmed its aggressive rate cut bets and we are now back at pricing around 54 bps of easing by year-end.
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. Another potential positive driver could be signs of more fiscal support as that will likely put upward pressure on inflation.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY is still consolidating below the 148.50 level as the market participants await new catalysts to pick a direction. The sellers will likely continue to step in around the 148.50 resistance to keep targeting the major trendline around the 145.50 level, while the buyers will look for a break higher to pile in for a rally into the 151.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price action has been pretty choppy, so there’s no need to force anything between the 148.50 resistance and the swing low at 145.86 level. This week will likely be more about patience than trading as we await Fed Chair Powell’s speech and then the NFP report in September.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor downward trendline defining the current bearish momentum on this timeframe. On an intraday basis, the sellers will likely lean on the trendline with a defined risk above it to position for a drop into the 145.86 level next. The buyers, on the other hand, will look for a break higher to pile in for a rally into the 148.50 resistance next. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have Fed’s Waller speaking and the FOMC meeting minutes. Tomorrow, we get the Japanese and US Flash PMIs as well as the US Jobless Claims figures. Finally, on Friday, we conclude the week with Japanese CPI and Fed Chair Powell speech at the Jackson Hole Symposium.
