Fundamental
Overview
The USD has been under some
pressure in the last couple of weeks as the weaker US data and the selloff in
the US stock market increased the expectations for more easing by year-end with
the market now fully pricing in three rate cuts.
Today we get the US CPI
report and it could be a tricky one for the US Dollar. Logically one would
expect more weakness for the greenback in case we get a soft report, but we
might even see a counterintuitive short-term appreciation on a relief rally in
equities.
A hot report, on the other
hand, might give the greenback a boost against the major currencies on risk-off
flows although even here we could see the US Dollar depreciating amid falling
long term Treasury yields with the market expecting the Fed holding off from cutting
even in the face of more economic slowdown and eventually leading to more
aggressive cuts.
On the JPY side, the data
recently started to come out on the softer side and Governor Ueda today didn’t
sound like someone who’s in a hurry to raise rates amid some uncertainty. The
Japanese Yen in the past couple of weeks has been supported across the board more
by the risk-off sentiment and falling Treasury yields rather than domestic
fundamentals.
The market is pricing in
around 32 bps of tightening by year-end with traders awaiting more data on the
inflation front to increase the expectations for another rate hike.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY is now testing the key 148.60 level. This is where we can
expect the sellers to step in with a defined risk above the level to position
for a drop into the 140.00 handle next. The buyers, on the other hand, will
want to see the price breaking higher to increase the bullish bets into the trendline.
USDJPY Technical
Analysis – 4 hour Timeframe
USDJPY 4 hour
On the 4 hour chart, we can
see that once we broke above the minor downward trendline, the buyers piled in
to target a pullback into the 148.60 level. There’s not much else we can add
here as the sellers will look for short opportunities around the 148.60 level
and the major trendline, while the buyers will look for upside breakouts to target
new highs.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, we can
see that we now have a minor upward trendline defining the current pullback. The
buyers will likely keep on leaning on the trendline to push into new highs, while
the sellers will look for a break lower to increase the bearish bets into the
140.00 handle. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have the US CPI report. Tomorrow,
we get the US PPI data and the US Jobless Claims figures. On Friday, we
conclude the week with the University of Michigan Consumer Sentiment report.
