USD
- The Fed left interest rates unchanged as expected at the last meeting with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long.
- The latest US PCE missed expectations across the board with the Core 6-month annualised rate falling below the Fed’s target at 1.9%.
- The labour market has been softening via less job opportunities rather than more layoffs with the Initial Claims hovering around cycle lows and Continuing Claims remaining high.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The market expects the Fed to start cutting rates in Q1 2024.
JPY
- The BoJ kept its monetary policy unchanged at the last meeting with interest rates at -0.10% and the 10 year JGB yield target at 0% with 1% as a reference cap.
- Governor Ueda repeated once again that they won’t hesitate to take easing measures if needed and that they are not foreseeing sustainable price increases unless wage growth picks up.
- The latest Japanese CPIshowed that inflationary pressures are easing although they remain well above the BoJ’s 2% target.
- The latest Unemployment Rate remained unchanged near cycle lows.
- The Japanese Manufacturing PMI fell further into contraction but the Services PMI ticked higher remaining in expansion.
- The latest Japanese wage data beat expectations and as a reminder the BoJ is focusing on wage growth to decide whether to tweak its monetary policy.
- The market expects the BoJ to hike rates in Q2 2024.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY continues to drift lower with the downward trendline defining the current downtrend. The pair has been pulling back recently and we can expect the price to react once again to the trendline where we can also find the red 21 moving average for confluence. That’s where the sellers are likely to step in with a defined risk above the trendline to position for a drop into the 138.00 handle.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the latest leg lower diverged with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we can expect the price to pullback all the way back to the trendline where we can also find the 50% Fibonacci retracement level for confluence. If the price breaks to the upside, the bearish setup would be invalidated, and the buyers will likely pile in to extend the rally into the 145.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the strong resistance zone around the 142.80 level. What happens here will likely decide the direction for the next few weeks. The buyers will want to see the price breaking higher, while the sellers will want to see a strong rejection. Moreover, a break below the counter-trendline should confirm the resumption of the downtrend and see the sellers increasing their bearish bets into the 138.00 handle.
Upcoming Events
This week is full of key economic data which will culminate with the NFP report on Friday. We begin today with the US ISM Manufacturing PMI and Job Openings and given the recent trends there could be room for disappointment. Later in the day, we will get the release of the FOMC Minutes, but it’s not expected to be market-moving given that it’s three weeks old data. Tomorrow, we will have another slate of US labour market data with the release of the US ADP and Jobless Claims figures. Finally, on Friday, we conclude the week with the NFP report and the ISM Services PMI.
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