Fundamental Overview
The USD has been stronger this week, but the tailwinds have been coming from outside the US. In fact, the greenback’s strength has been coming mostly from USDJPY flows and the weakness from other currencies like the EUR with the French political uncertainty and the NZD with the RBNZ’s 50 bps cut.
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.
In the absence of the government data, an October rate cut is now seen as a done deal. The reality is that an October cut was never really in question. It’s the December cut that could be priced out in case the data strengthens. We still have three NFP and two CPI reports before the December meeting.
On the JPY side, the victory of Takaichi over the weekend resulted in a big negative gap at the open for the yen as traders priced in more expansionary fiscal policy and a delay to rate hikes from the BoJ. The ball is now in the central bank’s court as traders will be focused on BoJ’s forward guidance.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY is trading at the top trendline around the 153.00 handle. This is where we can expect the sellers to step in with a defined risk above the trendline to position for a drop back into the 151.00 handle. The buyers, on the other hand, will want to see the price breaking higher to keep pushing into the 154.80 level next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the price action at the trendline with some visible consolidation. The strong bullish momentum might stall here and lead to a deeper pullback, but we will need to see a change in the trend on the lower timeframe to confirm that.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor support zone around the 152.30 level. This is where the buyers will likely continue to step in with a defined risk below the support to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 151.00 handle next. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have Fed Chair Powell speaking, while tomorrow we conclude the week with the University of Michigan Consumer Sentiment report.
