US:
- The Fed left interest rates unchanged as expected.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully as they are trying to find the optimal level of rates. Powell also added that the soft landing is not the base case at the moment, although they are aiming for it.
- The latest US Core PCE came in line with expectations with disinflation continuing steady.
- The labour market displayed signs of softening although it remains fairly solid as seen also last week with a strong beat in Jobless Claims.
- The ISM Manufacturing PMI beat expectations yesterday in another sign that the US economy remains resilient.
- The market doesn’t expect the Fed to hike again at the moment.
Japan:
- The BoJ kept everything unchanged as expected.
- The Japanese CPI showed that inflationary pressures remain high with the core-core reading hovering at the cycle highs.
- The Unemployment Rate missed expectations although it matched the previous reading.
- The Japanese Manufacturing PMI fell further into contraction but the Services PMI remains in expansion.
- BoJ governor Ueda repeated that they will not hesitate to take additional easing measures if needed and clarified that the recent comment on “quiet exit” from monetary easing was misinterpreted.
- The recent Japanese wage data showed a slowing in wage growth, and this is something the BoJ focuses on particularly.
- The Tokyo CPI, which is seen as a leading indicator for national CPI, continues to fall although it remains above the BoJ target.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the USDJPY pair is getting closer to the key 150.00 level which is seen as the line in the sand for an intervention by many market participants. The resilience in the US economic data continues to support further upside for the pair and the inaction from the BoJ on the policy front certainly doesn’t help the JPY.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a massive divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the fear of an intervention is what is probably limiting a stronger rally in the pair. The sellers are likely to step in around these levels to target another drop into the black trendline. The buyers, on the other hand, are likely to pile in around the trendline where they will have a better risk to reward setup and won’t be too close to the “intervention” level.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor support zone around the 149.55 level where we might find some aggressive buyers entering the market with a defined risk below the support to target a breakout. The sellers, on the other hand, will want to see the price breaking lower to position for a drop into the trendline and target a break below it.
Upcoming Events
This week we have many key economic releases that will culminate in the US NFP report on Friday. Today, we will have the US Job Openings data which led to a strong selloff the last time as the big miss made Treasury yields to fall due to less labour market tightness and less hawkish Fed expectations. Tomorrow, it will be the time for the ADP report and the ISM Services PMI. On Thursday, we will see the Jobless Claims data, which continues to show a solid labour market. Finally on Friday, it will be the time for the NFP report which is the only one the Fed will see before its next rate decision and the Japanese wage data. Strong US data should continue to support the upside in USDJPY so the bears will want to see weak figures.
See also the video below: