Fundamental Overview
The USD weakened last week following another soft US CPI report and benign Jobless Claims figures. The market not only fully priced in a rate cut in September but also started to price in some chances of a back-to-back rate cut in November. Overall, we had a goldilocks data release with an economy that is slowing but still growing. This should support the soft-landing narrative and be positive for the risk sentiment.
Even if the US Dollar weakens against the other major currencies though, the JPY in this environment should keep losing ground and the Japanese officials can’t do much to reverse the trend unless the fundamentals change. Last week, the Japanese intervened right after the soft US CPI report as the strategy seems to have shifted from buying the Yen in low liquidity times to propping it up on soft US data.
Overall, the data shouldn’t have changed much as we will likely need weak US growth data to see some sustained Yen strength, although it might be short lived if it’s not enough to make the market to price in more aggressive rate cuts for the Fed on fears of a recession. As long as we have stable global growth and positive risk sentiment, the JPY should find it hard to maintain any strength.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY is consolidating at the key trendline around the 158.00 handle as the dip buyers continue to pile in with a defined risk below the trendline to position for a rally into a new cycle high. The sellers will need the price to fall below the trendline to turn the bias more bearish and increase the bets into the 154.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the consolidation on the trendline and the support zone around the 158.00 handle. We can expect the buyers to keep defending the support and position for the continuation of the uptrend. A break above the 160.00 handle should give the buyers even more conviction and increase the bullish momentum into a new cycle high.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have an important swing level at the 159.50 level. If the price were to rise above it, we can expect the bullish momentum to increase. The white lines define the average daily range for today.
Upcoming Catalysts
Today we get the US Retail Sales report. Tomorrow, we have Fed’s Waller speaking. On Thursday, we get the latest US Jobless Claims figures and on Friday we conclude the week with the Japanese CPI data.
