US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- The US CPI this week came in line with expectations, so the market’s pricing remained roughly the same.
- The labour market displayed signs of softening although it remains fairly solid.
- Last week the ISM Services PMI and Jobless Claims surprised to the upside, which point to a resilient economy overall.
- Yesterday, we got yet another beat in Jobless Claims followed by strong Retail Sales and PPI data.
- The Fed members are leaning more towards a pause in September and the next decision will still be dictated by the economic data.
- The market doesn’t expect the Fed to hike at the September meeting and there’s just a 33% chance of a hike in November, although that can change if the data keeps on running hot.
Japan:
- The BoJ kept everything unchanged as expected at the last meeting but tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%.
- The Japanese CPI data surprised to the upside recently with the core-core reading reaching again the previous high.
- The Unemployment Rate surprisingly jumped to 2.7% recently, although it remains near cycle lows.
- BoJ Governor Ueda over the weekend said that his focus is on a quiet exit from the monetary easing and added that the BoJ should have enough data by year end to decide how to proceed.
- The Japanese wage data last week showed a slowing in wage growth, and this is something the BoJ focuses on particularly.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY remains in an uptrend, but the momentum is waning as we approach the 150.00 handle. The big picture fundamentals are not as strong as they were in the past year as we have the BoJ that might exit NIRP in the next 12 months and the Fed expected to end its tightening cycle. Nonetheless, the data is not supporting USDJPY downside yet as the US economy remains resilient and the wage growth in Japan is slowing.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the fall caused by the BoJ Governor Ueda’s comments over the weekend has been completely erased and the pair is now eyeing a breakout to the upside. In fact, the levels to watch now are the resistance at 147.81 and the upward trendline. A break above the resistance should lead to a rally into the 150.00 handle, while a break below the trendline is likely to cause a bigger pullback into the 145.00 support.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price recently pulled back from the resistance into the 147.00 support. The buyers stepped in as the US data surprised to the upside with the pair now approaching the resistance again. We should see more buyers coming into the market if the price breaks above the resistance to target the 150.00 handle. The sellers, on the other hand, will want to see the price breaking below the 147.00 support and the trendline to pile in and target the 145.00 support.
Upcoming Events
Today the only notable report left to be released for this week is the University of Michigan Consumer sentiment survey. Consumer sentiment might have deteriorated given higher energy prices and that might have filtered to higher inflation expectations. A very weak report is likely to weigh on Treasury yields and lead to some downside in USDJPY, while a hot report, especially on the inflation expectations side, might cause another rally in the pair.
See also the video below
