USD

  • The Fed left interest rates unchanged as expected at the last meeting 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 latest US Core PCE came in line with forecasts with the disinflationary progress continuing steady.
  • The labour market has been showing signs of weakening lately but last week we got some strong releases with the US Jobless Claims and the NFP coming in strongly.
  • The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
  • The University of Michigan Consumer Sentiment survey came in much better than expected with inflation expectations tumbling.
  • The hawkish Fed members recently shifted their stance to a more neutral position.
  • The market expects the Fed to start cutting rates in Q2 2024.

JPY

  • The BoJ kept its monetary policy basically unchanged at the last meeting 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 latest Japanese CPIshowed that inflation pressures are easing although they remain well above the BoJ’s 2% target.
  • The latest Unemployment Rate remained unchanged near cycle lows.
  • The Japanese Manufacturing PMI fell further into contraction but the Services PMI ticked higher remaining in expansion.
  • The latest Japanese wage data beat expectations and as a reminder the BoJ is focusing on wage growth to decide whether to tweak its monetary policy.
  • The BoJ Governor Ueda last week delivered some interesting comments where it looked like the central bank was indeed considering rate hikes in 2024.
  • The market expects the BoJ to hike rates in Q2 2024.

USDJPY Technical Analysis – Daily Timeframe

USDJPY Technical Analysis
USDJPY Daily

On the daily chart, we can see that as soon as the price broke below the rising channel, the USDJPY pair just tumbled helped by BoJ Governor Ueda’s comments where he sort of hinted to the end of the negative interest rates policy coming in 2024. The fall was so big and fast that the price at some point was too distant from the blue 8 moving average which generally signals overstretched levels. In fact, we got a pullback right into the 8 moving average where the price got rejected from as the sellers stepped in for the second round.

USDJPY Technical Analysis – 4 hour Timeframe

USDJPY Technical Analysis
USDJPY 4 hour

On the 4 hour chart, we can see that the price reached a key resistance zone around the 146.50 level where we had the confluence with the previous swing low level and the trendline. This is where the sellers piled in with a defined risk above the trendline to position for a drop into new lows. The buyers, on the other hand, will need the price to break above the trendline to invalidate the bearish setup and start targeting new higher highs.

USDJPY Technical Analysis – 1 hour Timeframe

USDJPY Technical Analysis
USDJPY 1 hour

On the 1 hour chart, we can see that we had a counter-trendline supporting the pullback into the major downward trendline. The price yesterday broke below the counter-trendline as the bearish momentum started to build up again. There’s no clear level at the moment where buyers or sellers can lean onto, although the 145.00 handle might trigger some reaction. In fact, we can expect the sellers to increase the bearish bets if the price falls below the level, while the buyers might try to lean on it to position for a rally back into the trendline and target a breakout.

Upcoming Events

This week is going to be a big one with the US CPI and the FOMC rate decision on the agenda. We begin today with the release of the US CPI report where the market will want to see how the disinflationary trend is going. Tomorrow, we have the US PPI data followed by the FOMC rate decision where the Fed is expected to keep interest rates unchanged. On Thursday, we will see the US Retail Sales and Jobless Claims figures, while on Friday we conclude the week with the Japanese and the US PMIs.

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