KEY POINTS:
- Japanese Yen is the strongest major currency today
- Better than expected Tankan data added support for the rate hike
- BoJ wage growth assessment was positive
- The market is pricing an 83% probability of a BoJ rate hike on Friday
- US NFP and CPI likely to steal the show
FUNDAMENTAL OVERVIEW
USD: The USD has been weakening across the board since last week’s FOMC decision. The Fed delivered on expectations cutting by 25 bps and signalling a higher bar for further rate cuts, but Fed Chair Powell’s press conference was seen as fairly dovish.
In fact, instead of sounding as neutral as possible and stressing data-dependency, he downplayed the inflation risk and emphasized the labour market weakness, suggesting that there’s more tolerance for higher inflation than for weaker labour market.
The focus this week will be on the US NFP and CPI reports that will wrap up the last real trading week of the year before market participants prepare for the holidays. Right now, the market is pricing 57 bps of easing by the end of 2026.
If we get strong US data, especially on the labour market side, we will likely see a hawkish repricing which would give the US dollar a boost. On the other hand, weak data should weigh on the greenback further as the market will bring rate cut bets forward.
JPY: On the JPY side, despite all the “leaks” and a more hawkish BoJ tone, the currency hasn’t really appreciated as one would have expected. Part of reason is that the market was already pricing high chances of at least two rate hikes by the end of 2026.
Today, the Japanese Yen strengthened on the back of better than expected Tankan data and some hawkish BoJ commentary. Moreover, the BoJ wage growth assessment released this morning supported the tightening process.
The market is now sure that the BoJ is going to deliver a 25 bps rate hike at this week’s monetary policy decision but it’s not expecting the central bank to outhawk the current pricing, which sees the BoJ tightening by 67 bps by the end of next year.
Therefore, USD/JPY will likely be driven more by the US data than the BoJ decision, unless the central bank decides to surprise the market.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that we have a key support zone around the 153.50 level. If the price gets there, we can expect the buyers to step in with a defined risk below the support to position for a rally into the 158.87 level next.
The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the major trendline.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we’ve had a fairly messy price action lately, not giving us any clear level to lean on.
The price is now trading around the last Thursday’s low at 155.00. A break below this level should open the door for a move into the 153.50 support.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a few minor support and resistance levels. The buyers stepped in around the 155.00 level to position for a move back into the 155.50 level.
If the price pulls back into that level, we can expect the sellers to step in with a defined risk above the 155.50 level to position for a drop into new lows with a better risk to reward setup.
The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 156.15 level next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the US NFP report. On Thursday, we get the US CPI data. On Friday, we conclude the week with the BoJ Monetary Policy decision.
