Fundamental Overview
The USD has been rallying steadily against most major currencies in the recent couple of weeks, although the catalyst behind the move has been unclear. A good argument has been that most of the moves we’ve been seeing in the past 10 trading days were driven by deleveraging from strengthening Yen.
Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could be the reason indeed.
From the monetary policy perspective, nothing has changed as the market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
The data continues to suggest that the US economy remains resilient with inflation slowly falling back to target. Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment.
The JPY, on the other hand, has been on a crazy run recently as it strengthened a lot against all the major currencies. The intervention and the breakout of a key trendline in USDJPY did help, and eventually a squeeze on carry trades could have exacerbated the move.
Fundamentally though, it doesn’t have much support. In the big picture, stable global growth and generally positive risk sentiment are bearish drivers for the JPY. The Yen will likely need weak US growth data to see some sustained strength on recessionary fears and more aggressive rate cuts expectations.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY eventually bounced on the key 152.00 support zone and extended the gains following some good US data. The buyers stepped in around the support to position for a rally into a new cycle high. The sellers will need to see the price breaking below the support to increase the bearish bets into the next key level at 146.50.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the sellers leant on the downward trendline to position for a break below the support with a better risk to reward setup. The buyers will want to see the price breaking above the trendline and the 154.75 high to gain even more conviction and increase the bullish bets into the 158.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a strong support zone around the 153.00 handle where the price got rejected from several times in the past days. This is where the buyers are likely to step in with a defined risk below the zone to position for a break above the trendline.
The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets and target a break below the key 152.00 support. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the US Job Openings and the US Consumer Confidence reports. On Wednesday, we have the BoJ Policy Decision, the US Employment Cost Index and the FOMC Policy Decision. On Thursday, we get the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Finally, on Friday, we conclude the week with the US NFP report.
