US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- Inflation measures since then showed further disinflation.
- The labour market displayed signs of softening although it remains fairly tight.
- Overall, the economic data started to surprise to the downside lately.
- The Fed members are leaning more towards a pause rather than another rate hike.
- The market doesn’t expect the Fed to hike anymore.
Japan:
- The BoJ kept everything unchanged as expected at the last meeting but implicitly tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%.
- The Japanese CPI data surprised to the upside recently with the core-core reading reaching again the previous high.
- The Unemployment Rate surprisingly jumped to 2.7% although it remains near the lows.
- ·BoJ’s Governor Ueda at the Jackson Hole Symposium reaffirmed that inflation is still below target and that’s why they’re sticking with their monetary easing. This was also echoed by other BoJ members, but they are starting to see the light at the end of the tunnel.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY sold off last Friday into the 145.00 support where we had also the confluence with the red 21 moving average and bounced back strongly with the pair now targeting a new high. There’s no real resistance now until the 150.00 handle, which is also what the majority of market participants are targeting at the moment.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been diverging with the MACD for a long time. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we only got pullbacks, but one strong catalyst and we could see a fast reversal, like the one seen after the big miss in the US Job Openings last week.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has been diverging with the MACD right when it was falling into the key 145.00 support. We then saw a strong bounce and a complete reversal that is now approaching the previous high. In case we see a pullback, the level to watch will be the 146.56 resistance turned support where we have also the confluence with the red 21 moving average. This is where we can expect the buyers to pile in with a defined risk below the level to target the 150.00 handle. The sellers, on the other hand, will want to see the price breaking lower to position for another fall into the 145.00 support.
Upcoming Events
This week is a bit empty on the data front with just the US ISM Services PMI tomorrow and the US Jobless Claims on Thursday being the main highlights. The market pricing is unlikely to change unless the data comes in really hot in which case, we should see the US Dollar strengthening. On the other hand, weaker readings might just bring forward rate cuts expectations and weigh on the greenback. We conclude the week with the Japanese wage data on Friday which is a key metric for the BoJ and its policy discussions. The last time the data missed expectations and weakened the yen.
See also the video below
