US
- The Fed left interest rates unchanged as expected with basically no change to the statement.
- Fed Chair Powell stressed once again that they are proceeding carefully as the full effects of policy tightening have yet to be felt.
- The recent US Core PCE came in line with expectations.
- The labour market is starting to show some weakness as Continuing Claims are now rising at a fast pace and the NFP data last Friday missed across the board.
- The US Consumer Confidence fell for the third consecutive month although the data beat expectations.
- The US ISM Manufacturing PMI last week missed expectations by a big margin, followed later on Friday with a disappointing ISM Services PMI, although the index remained in expansion.
- The market doesn’t expect the Fed to hike anymore.
Japan
- The BoJ kept its monetary policy basically unchanged but formally widened the YCC to 1% on the 10-year JGBs stating that it will be a reference cap.
- Governor Ueda repeated once again that they won’t hesitate to take easing measures if needed and that they are not foreseeing sustainable price increases.
- The recent Japanese CPIshowed that inflationary pressures remain high with the core-core reading hovering at the cycle highs.
- The Unemployment Rate remained unchanged near cycle lows.
- The Japanese Manufacturing PMI matched the prior reading remaining in contraction with the Services PMI falling but holding on in expansion.
- The latest Japanese wage data beat expectations. As a reminder the BoJ is focusing on wage growth to decide when to tweak its monetary policy.
- The market expects the BoJ to keep interest rates unchanged at the next meeting as well.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the USDJPY pair retreated from the cycle high as Treasury yields fell in the final part of last week following weaker than expected US labour market data. We can also notice that the divergence with the MACD is getting bigger and bigger and given the changing outlook for the US labour market, we might be around the top for the pair. The first target for the sellers should be the trendline around the 146.00 handle.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair bounced around the upward trendline in the final hours of last Friday and extended the rally in the first part of the week as Treasury yields reversed most of the drop following the disappointing US data. The price is now trading around a resistance zone where we can also find the 61.8% Fibonacci retracement level for confluence.
The sellers are likely to step in with a defined risk above the Fibonacci level to position for a drop back into the trendline and eventually target a breakout. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and position for a rally back into the highs.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is now diverging with the MACD right into the resistance zone. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, if the price breaks below the recent swing low at 150.30 we can expect more selling pressure coming into the market and take the pair into the trendline.
Upcoming Events
This week is pretty empty on the data front with just the US Jobless Claims tomorrow and the University of Michigan Consumer Sentiment on Friday being the only notable events. The market is likely to focus on the US Jobless Claims given the recent weakness in the labour market data. Strong readings are likely to lift Treasury yields and push the USDJPY pair higher. On the other hand, weak figures should lead to more downside for Treasury yields and take the USDJPY pair lower with them.
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