Fundamental Overview
The USD got a boost yesterday from the strong US PMIs which lifted Treasury yields and put in question the rate cut in September with the probability falling to roughly 60%. I would argue that the details weren’t that bad on the inflation front but overall good for the growth side.
The good part is that in either case the trend is unlikely to change as both drivers are supportive for more upside. 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.
Moreover, the Yen doesn’t even get some help from domestic data as inflation eased further making a rate hike from the BoJ unlikely.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY breached the key swing level at 156.80 following the strong US PMIs yesterday. This breakout should have opened the door for a rally into the 158.00 handle. The ultimate target remains the intervention level at 160.00.
That’s where we will likely see a strong rejection as the buyers will want to square their positions and the sellers will try to step in with a defined risk above the level to position for a drop back into the trendline.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we now have a good support around the 156.80 level where we can find the trendline for confluence. If we get a pullback into the trendline, we can expect the buyers to step in with a defined risk below it to position for a rally into the 158.00 handle with a better risk to reward setup. Alternatively, if the momentum from the PMIs remains strong, the buyers can also pile in once we get a break above the 157.20 high.
The sellers, on the other hand, will want to see the price breaking below the 156.80 support to invalidate the bullish setup and position for a drop back into the 156.00 handle. It’s hard to see such a scenario at the moment though.
Upcoming Catalysts
There are no catalysts today so the market should trade based on yesterday’s US PMI.