Fundamental Overview
The USD has been weakening across the board ever since Fed’s Williams endorsed a December rate cut. The greenback then extended the losses further last week following soft ADP data and a Bloomberg report saying that Hassett emerged as the frontrunner for the Fed Chair position.
The probability for a December cut is now at 92%, which makes it a done deal. We won’t get much data before the FOMC meeting, so the focus will likely be mainly on jobless claims and ADP data, which haven’t been showing any strong improvement.
Weak data should keep weighing on the greenback, while strong data could provide some short-term reprieve. At the end of the day though, it’s all about the FOMC decision now and the following NFP and CPI reports.
On the JPY side, the currency has been gaining some ground on the back of Governor Ueda’s comments in which he suggested that a rate hike could still be debated, although there was no clear hint to such a move.
The BoJ is focused primarily on wage negotiations, and they are trying to get enough data before the upcoming meeting to decide whether an earlier than expected rate hike is warranted or more time is needed to get a better view. The market is now pricing a 36% chance of a rate hike at the December meeting.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY broke below the upward trendline, opening the door for a pullback into the 153.50 support. The sellers piled in on the break and will keep on targeting the support zone. The buyers, on the other hand, should wait for the price to come into the support to position for a rally back into new highs with a better risk to reward setup.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor downward trendline defining the current pullback. The sellers will likely continue to lean on the trendline with a defined risk above it to keep pushing into the 153.50 support. The buyers, on the other hand, will look for a break higher to pile in for a rally into the 160.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance around the 155.66 level where the price reacted from several times in the past days. If we were to get a pullback into this resistance, we can expect the sellers to step in with a defined risk above it to position for a drop into the support. The buyers, on the other hand, will look for a break higher to extend the pullback into the trendline next. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US ISM Manufacturing PMI. On Wednesday, we have the US ADP and the US ISM Services PMI. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.
