Fundamental Overview
Last Thursday, WSJ’s Timiraos published an article which seemed suggesting that a 50 bps cut was still being discussed. The market responded by raising 50 bps cut probabilities to around 40% from 13% before the news.
Nick Timiraos is considered a Fed “insider”, so the market is attentive to all of his pieces concerning potential Fed decisions. Since then, the 50 bps camp got more vocal and the probability for the Fed to cut by 50 bps at the upcoming meeting stands now around 70% with a total of 120 bps of easing by year-end.
This repricing weakened the US Dollar across the board as Treasury yields fell further. Once we are done with the Fed decision though, the focus will switch back to the economic data. In case we start to see better figures, the market might start to pare back the aggressive easing expected in 2025 supporting the greenback in the short-term.
For the BoJ, the market sees a 96% probability of no change at the upcoming meeting and a total of 8 bps of tightening by year-end. The central bank will likely wait for the Fed to be a bit more down the road in their easing cycle to avoid too much market volatility.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY is now testing the key 140.20 level. This is where we can expect the buyers to step in with a defined risk below the level to position for a rally into the 150.00 handle. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 137.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a downward trendline defining the current bearish momentum. The sellers will likely lean on the trendline with a defined risk above it to position for a break below the 140.20 support with a better risk to reward setup. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the next major trendline around the 145.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we also have the 50% Fibonacci retracement level adding confluence to the trendline. There’s not much else to add here as the buyers will look for a breakout to the upside, while the sellers will lean on the trendline for a drop into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US Retail Sales and the US Industrial Production data. Tomorrow, we have the FOMC Rate Decision. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude with the Japanese CPI and the BoJ Rate Decision.
