Fundamental Overview
The USD last week saw a quick dip against the Yen following the soft US CPI report as the market priced back in two rate cuts by the end of the year. The moves were reversed soon after though as we got a bit more hawkish than expected FOMC decision where the dot plot showed that the Fed expected just one cut for this year despite the soft US CPI report.
Later on, Fed Chair Powell backpedalled on the projections making them a bit less worrying as the central bank remains very data dependent. Nonetheless, the path of least resistance remains to the upside as the market doesn’t have strong bullish drivers for the Yen yet.
In fact, the JPY continues to lose ground against the major currencies amid the general pickup in global growth and overall positive risk sentiment, even if we get bouts of risk-off here and there. We will likely need weak US growth data to see some more Yen strength, but it might be short lived if it’s not enough to make the market to price in more aggressive rate cuts for the Fed.
The BoJ disappointed the markets last week leaving bond purchases unchanged despite expectations of a reduction. This was reversed in the press conference though as BoJ Governor Ueda said that they will begin tapering bond purchases immediately after the July meeting and the size of the tapering will be substantial.
In the bigger picture though, this is mostly noise as the pickup in global growth and the positive risk sentiment are stronger drivers at the moment.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY continues to drift higher towards the intervention level at 160.00. That’s where we will likely find the sellers stepping in more aggressively with a defined risk above the level to position for a drop into the trendline.
If the price were to further break below the trendline it would give the sellers a bit more confidence to increase the bearish bets and start targeting new lows with the 151.85 level as the first target.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is trading right around the key 158.00 resistance. The buyers will want to see a breakout to the upside to increase the bullish bets into the 160.00 level, while the sellers will likely lean on it to position for a drop into the trendline.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has been trading inside a rising channel and continues to struggle around the resistance. If we get a pullback from this level, the buyers will likely step in around the 157.00 handle where we have the confluence of the lower bound of the channel and the 50% Fibonacci retracement level. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the US Housing Starts, Building Permits and the latest US Jobless Claims figures. On Friday, we conclude the week with the Japanese and US PMIs.
