Fundamental
Overview
The USD has been rallying
steadily against the major currencies since last Wednesday, although it’s
unclear what has been behind the move. 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 risk sentiment. The new driver could be Trump now
looking more and more like a potential winner and his policies are seen as
inflationary which could see the Fed eventually going even more slowly on rate
cuts.
The JPY has been another
winner recently as the Yen strengthened against all the major currencies. The
intervention and the breakout of a key trendline in USDJPY did help, but
fundamentally it doesn’t have much support. It might be some positioning into a
potential BoJ rate hike or just some profit taking.
In the big picture, the JPY
in this environment should remain in a downtrend. The Yen will likely need weak
US growth data to see some sustained strength on recessionary fears and more
aggressive rate cuts expectations. But as long as we have stable global growth
and generally positive risk sentiment, the main trend is unlikely to reverse.
USDJPY
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDJPY retested the key trendline around the 158.00 level and
eventually continued the move lower. For now, the sellers remain in control and
will likely look for an extension to the 152.00 handle. The buyers, on the
other hand, will likely need a catalyst or some signs of a change in momentum on
the lower timeframes before piling back in.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that from a risk management perspective, the sellers will have a better
risk to reward setup around the downward trendline. The buyers, on the other
hand, will want to see the price breaking above the trendline to gain some
control and start targeting new highs.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have another minor downward trendline defining the current bearish
momentum. If we get a pullback into it, we can expect the sellers to lean on it
to position for a drop into new lows. The buyers, on the other hand, will want
to see the price breaking above the trendline to start piling in for a rally
into the next major trendline. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have the US Flash PMIs. Tomorrow, we will get the latest US Jobless
Claims figures. Finally, on Friday we conclude the week with the Tokyo CPI and
the US PCE reports.
See the video below
This article was written by Giuseppe Dellamotta at www.forexlive.com.
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