The US economic data has been surprising to the upside since the last FOMC meeting. Given the Fed willingness of hiking another two or more times if the data remains strong, the market repricing interest rates expectations on the more hawkish side. Although this development led to higher Treasury yields, the USDJPY pair struggled to take off and instead pulled back.
On the other hand, the BoJ maintains its dovish stance keeping rates at -0.10 and the YCC at the usual settings. Core inflation in Japan keeps on rising and there are only slightly tentative signs of a possible exit from the current policy. So, ss long as the policy divergence between the two central banks continues, we should see more higher highs for the pair, all else being equal.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that we finally got a pullback in USDJPY. In fact, the price has fallen into the trendline where we can also find confluence with the 38.2% Fibonacci retracement level and the red 21 moving average. We can expect the buyers piling in here with a defined risk below the 142.17 support and target the 150.00 handle. The sellers, on the other hand, will want to see the price to break below the 142.17 support to pile in and extend the selloff into the next trendline.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the market sold off pretty heavily yesterday although the US economic data was solid pretty much across the board. This is a strange reaction as the US Treasury yields rallied instead. The market may have just been too much overstretched and it needed a pullback. This is a key zone now to decide where the USDJPY will go next. A bounce should lead to another big rally, while a break lower would open the door for a big selloff into the 139.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a swing low resistance at 143.50. If the price pulls back into that level, we can expect the sellers to pile in there to position for more downside. More conservative buyers, on the other hand, will want to see the price to break above that level to confirm the bounce and the continuation of the rally.
Upcoming Events
Today we have the US NFP report. The market is already expecting good data so the only surprise may come from a much higher than expected numbers or a miss to the forecasts. In the first case, we should see the USD appreciate as the market will be pricing a more hawkish Fed. In the second case, we can expect the USD to weaken as Treasury yields will drop and take USDJPY with them.