Fundamental Overview
The US Dollar continues to consolidate around the highs although it’s stronger against the commodity currencies. In the bigger picture, the market reached the peak in the repricing of interest rates expectations, and it will need stronger reasons to price out the remaining rate cuts for 2025.
In fact, despite lots of strong US data, the market’s pricing remained largely unchanged around three rate cuts by the end of 2025. The focus is now on the US CPI report due tomorrow. It looks like the Fed really wants to cut next week before pausing for some months. So, we might need an upside surprise in the core inflation numbers to force them to change plans.
Even if the Fed decides to cut next week despite a hot CPI, the market will likely scale back further the rate cuts expectations for 2025 and that could trigger some risk aversion with the US Dollar rallying across the board. The best scenario would be a soft report given the overstretched long positions in the greenback. In such a case, we can expect the US Dollar to selloff across the board.
On the JPY side, the market pared back the probabilities for a rate hike in December and it now sees a 71% probability of no change. We haven’t got anything in the meantime, so the latest repricing might have been due entirely to JPY strength.
This week, we have the Tankan Index and it should have gained more importance since the dovish BoJ member Nakamura cited it as something he will look at to decide whether a rate hike in December would be a good idea.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY is getting closer to the key 151.90 level. That’s where we can expect the sellers to step in with a defined risk above the level to position for a drop into new lows. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 160.00 handle.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a downward trendline defining the bearish momentum on this timeframe. The trendline is near the key 151.90 level, so it should technically strengthen that resistance zone. The sellers will likely pile in around those levels to position for new lows, while the buyers will look for a break higher to target new highs.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we’ve been having a very choppy price action recently as the market has been waiting for the US CPI release before picking a direction. The price broke above the 150.50 level yesterday and extended the rally into the 151.50 level as the more aggressive easing measures announced by the Chinese Politburo raised Treasury yields.
From a risk management perspective, it’s better to wait for the US CPI release as a soft report is likely to weigh on the US Dollar, while a hot one should give it a boost. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow, we have the Japanese Tankan Index and the US CPI report. On Thursday, we get the latest US Jobless Claims figures and the US PPI. On Friday, we conclude the week with the BoJ’s Tankan Index.