Fundamental Overview
The USD has been rallying steadily against the major currencies since last Wednesday, although it’s unclear what has been behind the move. 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 risk sentiment. The new driver could be Trump now looking more and more like a potential winner and his policies are seen as inflationary which could see the Fed eventually going even more slowly on rate cuts.
The JPY has been another winner recently as the Yen strengthened against all the major currencies. The intervention and the breakout of a key trendline in USDJPY did help, but fundamentally it doesn’t have much support. It might be some positioning into a potential BoJ rate hike or just some profit taking.
In the big picture, the JPY in this environment should remain in a downtrend. The Yen will likely need weak US growth data to see some sustained strength on recessionary fears and more aggressive rate cuts expectations. But as long as we have stable global growth and generally positive risk sentiment, the main trend is unlikely to reverse.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY retested the key trendline around the 158.00 level and eventually continued the move lower. For now, the sellers remain in control and will likely look for an extension to the 152.00 handle. The buyers, on the other hand, will likely need a catalyst or some signs of a change in momentum on the lower timeframes before piling back in.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that from a risk management perspective, the sellers will have a better risk to reward setup around the downward trendline. The buyers, on the other hand, will want to see the price breaking above the trendline to gain some control and start targeting new highs.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another minor downward trendline defining the current bearish momentum. If we get a pullback into it, we can expect the sellers to lean on it to position for a drop into new lows. The buyers, on the other hand, will want to see the price breaking above the trendline to start piling in for a rally into the next major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Flash PMIs. Tomorrow, we will get the latest US Jobless Claims figures. Finally, on Friday we conclude the week with the Tokyo CPI and the US PCE reports.