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 NFP report beat expectations although there was more weakness under the hood.
- The latest ISM Manufacturing PMI beat expectations, while the ISM Services PMI missed by a big margin.
- The hawkish Fed members have been leaning on a more neutral side lately.
- 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 Tokyo CPI, which is seen as leading indicator for National CPI, eased further but the Core-Core measure remains stuck at cycle highs.
- 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 recently broke above the key trendline that was defining the strong downtrend since the cycle high and pulled back into the good old 145.00 handle. We can notice 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 got the pullback into the 145.00 handle where we had also the 38.2% Fibonacci retracement level for confluence. The sellers stepped in to position for a drop into the 138.00 handle.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the recent divergence with the MACD and the strong correction into the 145.00 handle. The pair is currently bouncing on the upward trendline where we can also find the 50% Fibonacci retracement level for confluence. This is where the buyers stepped in to position for a rally into the 146.61 swing level. The sellers, on the other hand, will want to see the price breaking lower to invalidate the bullish setup and increase the bearish bets into the 138.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current price action with the pair now trading between the upward trendline and the minor downward trendline. If the price reaches the downward trendline we can expect the sellers to step in again to position for a break below the upward trendline. The buyers, on the other hand, will want to see the price breaking above the downward trendline to increase the bullish bets into the 146.61 level.
Upcoming Events
Tomorrow we have the Japanese wage data which is what the BoJ is focused on to decide whether to tweak its monetary policy. On Thursday, we will get the latest US CPI report and the US Jobless Claims figures. Finally, on Friday, we conclude the week with the US PPI data.
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