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 JPY has been another winner recently as the Yen strengthened a lot 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 and in that case it could be a great “sell the fact” opportunity.
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 eventually dropped all the way back to the key 152.00 support zone. This is where we can expect the buyers to step in with a defined risk below the support to position for a rally into a new cycle high. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into new lows.
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 more conviction and increase the bullish bets into 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 break below the support.
The buyers, on the other hand, will want to see the price breaking above the trendline to increase the bullish bets into the major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we will get the latest US Jobless Claims figures and the US Q2 Advance GDP. Tomorrow, we conclude the week with the Tokyo CPI and the US PCE reports.
