Fundamental
Overview
The USD has been rallying
steadily against most major currencies in the recent couple of weeks, although the
catalyst behind the move has been unclear. A good argument has been that most
of the moves we’ve been seeing in the past 10 trading days were driven by
deleveraging from strengthening Yen.
Basically, the squeeze on
the carry trades impacted all the other markets. Given the magnitude of the
recent appreciation in the Yen and the correlation with many other markets, it
looks like this could be the reason indeed.
From the monetary policy
perspective, nothing has changed as the market continues to expect at least two
rate cuts by the end of the year and sees some chances of a back-to-back cut in
November.
The data continues to
suggest that the US economy remains resilient with inflation slowly falling
back to target. Overall, this should continue to support the soft-landing
narrative and be positive for the general risk sentiment.
The JPY, on the other hand,
has been on a crazy run recently as it strengthened a lot against all the major
currencies. The intervention and the breakout of a key trendline in USDJPY did
help, and eventually a squeeze on carry trades could have exacerbated the move.
Fundamentally though, it
doesn’t have much support. In the big picture, stable global growth and
generally positive risk sentiment are bearish drivers for the JPY. The Yen will
likely need weak US growth data to see some sustained strength on recessionary
fears and more aggressive rate cuts expectations.
USDJPY
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDJPY eventually bounced on the key 152.00 support zone and extended the gains following some
good US data. The buyers stepped in around the support to position for a rally
into a new cycle high. The sellers will need to see the price breaking below
the support to increase the bearish bets into the next key level at 146.50.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that the sellers leant on the downward trendline to position for a break below the
support with a better risk to reward setup. The buyers will want to see the
price breaking above the trendline and the 154.75 high to gain even more
conviction and increase the bullish bets into the 158.00 handle.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a strong support zone around the 153.00 handle where the price
got rejected from several times in the past days. This is where the buyers are
likely to step in with a defined risk below the zone to position for a break
above the trendline.
The sellers, on the other
hand, will want to see the price breaking lower to increase the bearish bets
and target a break below the key 152.00 support. The red lines define the average daily range for today.
Upcoming
Catalysts
Tomorrow we have the US Job Openings and the US Consumer Confidence reports. On
Wednesday, we have the BoJ Policy Decision, the US Employment Cost Index and
the FOMC Policy Decision. On Thursday, we get the latest US Jobless Claims
figures and the US ISM Manufacturing PMI. Finally, on Friday, we conclude the
week with the US NFP report.
See the video below
This article was written by Giuseppe Dellamotta at www.forexlive.com.
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