Fundamental Overview
The Yen continues to struggle despite the dovish expectations around the Fed’s interest rates path. Yesterday, we got a big downside surprise in the US PPI report and although the USD weakened heavily against the other major currencies, the JPY failed to sustain the gains.
One of the main reasons is that the positive risk sentiment favours the higher yielding currencies. The other reason is that the Japanese yields have been falling faster compared to the other major currencies as the recent volatility in the Japanese markets reduced the probabilities of further rate hikes.
For the Fed, the market is split between a 25 and 50 bps cut in September and a total of 107 bps of easing by year-end. On the BoJ side, the market isn’t pricing any more rate hikes for this year as there are just 7 bps of tightening expected by year-end.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY is consolidating just beneath the major broken trendline around the 148.00 handle. The sellers will likely step in around the broken trendline to position for a drop into the 140.00 handle, while the buyers will want to see the price rising above the trendline to gain more control and target new highs.
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 149.00 handle where they will find the confluence of the upward broken trendline and the downward trendline. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new highs.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the consolidation between the 146.00 support and the 148.00 resistance. The buyers will want to see the price breaking higher to pile in for a rally into the trendline targeting a breakout above it. The sellers, on the other hand, will look for a break lower to position for a drop into the 140.00 handle. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US CPI report. Tomorrow, we get the US Retail Sales and Jobless Claims figures. Finally, on Friday, we conclude the week with the University of Michigan Consumer Sentiment survey.