Fundamental Overview
The USD rallied across the board yesterday following an aggressive selloff in the GBPUSD pair as the UK 30yr yield jumped into a new cycle high. Some of the gains were eventually erased but the greenback remained supported as the price action continues to be choppy as we head into the key US data.
In fact, traders will be focused on the US ADP and NFP reports. The data will influence interest rates expectations greatly. Right now, the market is pricing a 91% probability of a rate cut in September and a total of 55 bps of easing by year-end.
Strong data might take the probability for a September cut towards a 50/50 chance but will certainly see a more hawkish repricing further down the curve and likely support the dollar. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in and weighing on the greenback.
On the JPY side, we haven’t got meaningful changes in the fundamentals. In fact, the currency has been rallying on the back of the dovish expectations for the Fed. For more JPY appreciation we will need weak US data to increase the dovish bets on the Fed or a series of higher inflation figures for Japan to price in more rate hikes than currently expected.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY eventually rallied back into the major 148.50 resistance zone. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop into the major trendline. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 151.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been stuck in a range for a month as traders have been waiting for the key US data before picking a direction. There’s not much else we can glean from this timeframe, so we need to zoom in to see some more details.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we might be forming a smaller range at the resistance. The buyers will want to see the price breaking above the recent high at 148.95 to extend the rally into the 151.00 handle. The sellers, on the other hand, will look for a break below the 147.95 level to pile in for a drop into the 146.63 support. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Job Openings data. Tomorrow, we get the US ADP, the latest US Jobless Claims figures and the US ISM Services PMI. On Friday, we conclude the week with the Japanese Wage Growth data and the US NFP report.
