Fundamental Overview
The USD got a boost from the strong US Consumer Confidence data which triggered an aggressive rise in long term Treasury yields. The report however just showed that the labour market remains resilient which is good news for growth and not necessarily bad news for inflation. Moreover, the month-end flows might have distorted the price action in the last couple of days which led to some risk-off sentiment and boosted the Yen.
The USD should remain supported against the JPY amid the Fed’s higher for longer stance and the positive risk sentiment because both the scenarios are negative for the Yen. The trend will likely change only when we start to get some recessionary US data that will make the market to price in a more aggressive rate cut path and lead to some risk-off sentiment.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY continues to creep higher amid resilient US economic data. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline although we will likely need some weak US data or a downside surprise in the US CPI to trigger such a big correction. For now, the path of least resistance remains to the upside.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has been consolidating around the 157.00 handle. There’s a good support for the buyers around the minor trendline where we can also find the 38.2% Fibonacci retracement level for confluence. The sellers will want to see the price breaking below the trendline to extend the correction into the major trendline next.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the rangebound price action between the 156.50 support and the 157.20 resistance of the last couple of weeks. We got a breakout recently as Treasury yields rallied but all the gains were erased yesterday without a clear catalyst.
This might be due to the month-end flows distorting the price action. The red lines represent the average daily range for today. If we get a soft US PCE, we might get the pullback into the trendline where the buyers will likely step in to buy the dip. On the other hand, a break above the resistance should see the bullish momentum increasing.
Upcoming Catalysts
Today we conclude the week with the US PCE report which is unlikely to change much for the Fed as the central bank remains in a “wait and see” mode. Nonetheless, a cold report could weigh on the USDJPY in the short term while hot figures should give it a boost.