Fundamental Overview
The USD came under pressure since Friday following the softer than expected US CPI report and then the US-China preliminary deal over the weekend. Overall, the market pricing didn’t change much as it was already very dovish going into the CPI and the trade talks, but given the positive risk sentiment, the greenback continues to stay on the backfoot.
The risk-on sentiment is expected to weigh on the dollar in the short-term, although Treasury yields could also erase the drop triggered by Trump’s escalation a couple of weeks ago. This could create some tension between bullish and bearish drivers, but for now there’s no strong reason for the dollar to rally amid the lack of key US data.
The Fed tomorrow is widely expected to cut by 25 bps and keep the status quo given the lack of US data. For this reason, the decision is likely to be a non-event considering that we won’t even get the SEP.
On the JPY side, the currency has been weakening since Takaichi became Prime Minister as traders continued to expect the BoJ to delay rate hikes. The latest Japanese CPI didn’t help much either as the data came in line with expectations and in the BoJ’s projected range. Today, we saw some yen strength on the back of positive US-Japan talks and some hawkish comments from US Treasury Secretary Bessent on Japanese monetary policy.
Right now, the market is pricing just an 18% probability of a hike at the upcoming meeting and 42% for a hike by year-end. It’s worth to keep an eye on “leaks” ahead of the decision and especially be prepared for a surprise hike, even though it’s unlikely.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY eventually rejected the resistance around the 153.00 handle where we have the confluence of the recent high and the top trendline. That’s where the sellers stepped in with a defined risk above the trendline to position for a pullback into the 151.00 support. If the price falls into the support, we can expect the buyers to pile in there with a defined risk below the support to position for a rally into the 154.80 level next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the rejection around the 153.26 level where we have the top trendline and the recent high. There’s not much else to add here as the buyers should wait for a pullback into the 151.00 support, while the sellers will want to see the price breaking further lower to increase the bearish bets into the 148.50 level next.
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. If the price gets there, we can expect the sellers to step in with a defined risk above the resistance to position for a drop into the 151.00 support. The buyers, on the other hand, will look for a break higher to pile in for a rally and target a break above the top trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the FOMC policy decision. On Thursday, we have the BoJ policy decision and the Trump-Xi meeting. On Friday, we conclude the week with the Tokyo CPI.
