FUNDAMENTAL OVERVIEW
USD:
The US Dollar sold off across the board on Friday following rumours of the NY Fed conducting rate checks on the USD/JPY pair. The market took that as a signal of a potential intervention to strengthen the Japanese Yen and the unwinding of positions weighed on the greenback.
This wasn’t a fundamental-driven move but a “technical” one. In general, such reactions are eventually faded in the following days. The problem for the dollar is that there’s no strong reason for it to appreciate yet.
Tomorrow, we have the FOMC decision where the central bank is expected to keep interest rates unchanged and maintain a data-dependent approach for the next rate cuts. There shouldn’t be any surprise at this meeting. February might be key for the US Dollar as we get another set of economic data, with the NFP report likely being pivotal for the market pricing.
In fact, we’ve been seeing notable improvements in the US Jobless Claims data that could point to a re-acceleration in the labour market. The market is still pricing 46 bps of easing by year-end. Those bets are likely to be pared back in case the data strengthens and should provide support for the greenback.
JPY:
On the JPY side, the BoJ left interest rates unchanged as expected last week and upgraded slightly growth and inflation forecasts due to the expansionary fiscal policies. There was no surprise there.
During the Press Conference, Governor Ueda didn’t offer anything new in terms of forward guidance as he just repeated that they will keep raising rates if the economic outlook is realised. He also added that April price behaviour will be a factor to mull over a rate hike. This suggests that April is when they expect to deliver another rate hike if the data supports such a move.
During Ueda’s press conference, the Japanese Yen started to weaken again and crossed the 159.00 level on USD/JPY. Soon after that, we got a strong spike lower that brought the pair down by 200 pips in a couple of seconds. After a few hours of consolidation, the pair started to sink again as rumours of rate checks from the NY Fed spread. Interventions don't fix the fundamental problems, so the JPY should continue to weaken until the BoJ turns more hawkish.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY tumbled into the key 154.50 support zone and briefly probed below it. This is where we can expect the buyers to step in with a defined risk below the low to position for a rally into the 160.00 handle. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the trendline next.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the range got broken on Friday as we got rumours of rate checks in the afternoon that triggered a selloff in the pair. The yen eventually rallied some more yesterday as Japanese PM Takaichi jawboned the currency over the weekend. There’s not much we can glean from this timeframe as the buyers will look for longs around these levels, while the sellers will wait for another break lower to increase the shorts.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that the pair has not closed the gap around the 155.50 level yet. That should act as resistance in case the price gets there. The sellers will likely step in around the resistance with a defined risk above it to position for a drop into new lows. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 160.00 handle. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the weekly US ADP jobs data and the US Consumer Confidence report. Tomorrow, we have the FOMC policy announcement. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the Tokyo CPI and the US PPI report.
