Fundamental Overview
The USD came under some pressure on Friday as the risk-off sentiment caused by Trump’s threat of substantially increasing tariffs on China weighed on Treasury yields. Over the weekend, we had more soothing comments from Trump and other US officials which triggered a recovery in risk sentiment.
The positive mood weighed a bit on the greenback but eventually the risk mood deteriorated again as US Treasury Secretary Bessent poured some cold water on the weekend hype and the Chinese imposed special port fees on US related vessels as countermeasures against the US previous port fees.
Domestically, nothing has changed for the US dollar as the US government shutdown continues to delay many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side, so any hiccup on that front is likely to keep weighing on the greenback.
The market pricing shifted more dovish after the latest US-China escalation with 48 bps of easing by year-end and 122 bps cumulatively by the end of 2026. The BLS announced last week that despite the shutdown, it will release the US CPI report on October 24, so that’s going to be a key risk event.
In case we get hot data, we will likely see a hawkish repricing in interest rates expectations with the December cut being priced out. Conversely, a soft report shouldn’t change much in terms of pricing, but it will likely weigh on the greenback anyway. This will of course be taken in context of the US-China relations by then.
On the JPY side, the currency strengthened following the risk-off sentiment triggered by the US-China escalation. Domestically, Takaichi is having some trouble securing enough votes to become the next Prime Minister after the loss of Komeito support. The voting is expected to take place next week. On the monetary policy side, nothing has changed. Traders are assigning just a 18% probability of a rate hike at the October meeting given the political uncertainty and 33% chance of a rate hike by year-end.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY eventually rejected the top trendline around the 153.00 handle and pulled back into the support zone around the 151.00 handle. There’s not much else we can see here but the buyers will likely continue to step in around the support, while the sellers will look for shorts around the top trendline.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the recent price action with the pullback into the support zone and the bounce following the positive weekend comments from Trump and other US officials. Bessent’s comments and the Chinese countermeasures triggered some risk-off again.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance zone around the 152.50 level. This is where we can expect the sellers to step in with a defined risk above the zone to position for a break below the 151.00 support. The buyers, on the other hand, will look for upside breakouts to target new highs. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have Fed Chair Powell speaking although he’s unlikely to change his stance given that we haven’t got anything new on the data front. For now, we know that only the US CPI will be published despite the shutdown, which is scheduled for Friday October 24.
