Fundamental Overview
Last Friday, Fed Chair Powell delivered a more dovish than expected speech at the Jackson Hole Symposium as he basically kept the door open for a 50 bps cut at the September meeting. In fact, the line saying that they will do everything they can to support a strong labour market was key.
That pushed Treasury yields lower and weighed on the US Dollar across the board giving the yen a boost as the carry trades continue to lose some appeal. Nonetheless, the Fed is cutting rates into a resilient economy, so one has to be mindful that we might eventually get an increase in economic activity that could lift long term yields.
That might not be the market’s focus at the moment as we head into the first cut because we will need a catalyst to change the narrative. The focus right now is on the US labour market data as more weakening could not only trigger a more aggressive Fed easing but also bring back recessionary fears which should support the yen.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY rejected the broken trendline around the 149.00 handle where we had also the 38.2% Fibonacci retracement level for confluence and dropped all the way down to the 143.50 level.
The sellers remain in control for now and will keep on targeting the 140.20 low. If the price gets there, that’s where we can expect the buyers to step in with a defined risk below the level to position for a rally into new highs.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a major downward trendline defining the current downtrend. We can expect the sellers to keep on leaning on it to position for new lows with a defined risk above it. The buyers, on the other hand, will want to see the price breaking higher to start piling in for new highs.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor counter-trendline defining the current bullish momentum on this timeframe. The buyers will likely keep on leaning on it to position for a break above the major trendline, while the sellers will want to see the price breaking lower to increase the bearish bets into the 140.00 handle. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Consumer Confidence report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude with the Tokyo CPI and the US PCE report.