Fundamental Overview
The USD sold off across the board on Friday as Fed Chair Powell tilted more dovish by saying that “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
That saw traders firming up expectations for a rate cut in September which now stands around 85% probability with a total of 54 bps of easing by year-end. Overall, it’s not the repricing in interest rates expectations that weighed on the greenback but hedges being unwound.
Now, the focus turns to the US NFP report next week which is going to be crucial and will influence greatly interest rates expectations. 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. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in.
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 got rejected from the 148.50 resistance once again as the sellers piled in more aggressively on the dovish tilt from Fed Chair Powell. The target for the sellers should be the major upward trendline around the 145.50 level. If the price gets there, we can expect the buyers to step in with a defined risk below the trendline to position for a rally back into the resistance.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been stuck in a range for almost the entire month as traders have been waiting for Fed Chair Powell and the key data releases in September. There’s not much we can glean from this timeframe, so we need to zoom in to see some more details.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the current pullback. The buyers will likely continue to lean on it to keep pushing into the resistance, while the sellers will look for a break lower to increase the bearish bets into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the US Consumer Confidence. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the Tokyo CPI and the US PCE price index.
