Fundamental Overview
The USD sold off across the board on Friday following a softer than expected NFP report. Overall, the data wasn’t as bad as one might think by just looking at the reaction but given that we were positioned for a strong report and the pricing got more hawkish after the Fed’s decision, the weaker data was enough to trigger a quick repricing.
In fact, the market is now pricing 59 bps of easing by year-end compared to just 35 bps before the NFP release. That’s a pretty quick change of heart. Over the weekend, we had Fed’s Williams opening the door for a cut in September and yesterday, Fed’s Daly echoed such sentiment. The NFP clearly made them a bit more worried, and a September cut is now basically a done deal.
It’s highly likely that more benign data will see Fed Chair Powell opening the door for a cut in September at the Jackson Hole Symposium.
On the JPY side, we haven’t got anything new since the BoJ left interest rates unchanged and revised inflation forecasts higher as expected at the last meeting. The yen, after some depreciation caused by dovish Governor Ueda’s comments, rallied strongly on the back of the soft NFP report and the dovish repricing for the Fed.
For more JPY appreciation we will need weak US data to increase the dovish bets on the Fed or higher inflation figures for Japan to price in more rate hikes than currently expected. Other 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 eventually sold off from the key resistance zone around 151.00 handle. The target for the sellers should be the major trendline around the 144.50 level. That’s where 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 the price is trading just below the upward trendline that was defining the bullish momentum. We can expect the sellers to pile in around these levels with a defined risk above the trendline to keep pushing into the 145.86 level. The buyers, on the other hand, will want to see the price rising back above the trendline to invalidate the bearish setup and target a move back into the resistance.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we could have a minor resistance around the most recent swing high at the 148.00 handle. If the price gets there, we can expect the sellers to lean on it with a defined risk above it to position for a drop into the 145.86 level with a better risk to reward setup. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 151.00 resistance. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US ISM Services PMI and on Thursday, we get the latest US Jobless Claims figures.
