US:

  • The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
  • Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
  • Inflation measures since then showed further disinflation.
  • The labour market displayed signs of softening although it remains fairly solid.
  • Overall, the economic data started to surprise to the downside lately.
  • Last week the ISM Services PMI and Jobless Claims surprised to the upside.
  • The Fed members are leaning more towards a pause in September.
  • The market doesn’t expect the Fed to hike at the September meeting, but there’s now a 50/50 chance of a hike in November.

Japan:

  • The BoJ kept everything unchanged as expected at the last meeting but tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%.
  • The Japanese CPI data surprised to the upside recently with the core-core reading reaching again the previous high.
  • The Unemployment Rate surprisingly jumped to 2.7% recently, although it remains near cycle lows.
  • BoJ Governor Ueda over the weekend said that his focus is on a quiet exit from the monetary easing and added that the BoJ should have enough data by year end to decide how to proceed.
  • The Japanese wage data last week showed a slowing in wage growth, and this is something the BoJ focuses on particularly.

USDJPY Technical Analysis – Daily Timeframe

USDJPY Technical Analysis
USDJPY Daily

On the daily chart, we can see that the USDJPY fell to the upward trendline and the red 21 moving average following Ueda’s comments over the weekend. The price then bounced back as the buyers leant on the trendline to position for another rally into the highs. The sellers will need the price to break below the trendline to switch the bias more to the downside and target new lower lows.

USDJPY Technical Analysis – 4 hour Timeframe

USDJPY Technical Analysis
USDJPY 4 hour

On the 4 hour chart, we can see more closely the downside gap at the open and the selloff into the trendline. The buyers then piled in around the trendline and the 50% Fibonacci retracement level to fade the selloff and target a new higher high. This is still a buyers’ market with the 150.00 handle as the ultimate target.

USDJPY Technical Analysis – 1 hour Timeframe

USDJPY Technical Analysis
USDJPY 1 hour

On the 1 hour chart, we can see that we have a swing high around the 147.00 level. If the price breaks above it, we will have a new higher high and the short-term market structure will turn bullish again. That’s when we can expect more buyers to come into the market to position for further upside.

Upcoming Events

This week we have many important events beginning with the US CPI tomorrow, which is expected to show an increase in headline inflation but further disinflation in the core measure. On Thursday, we will see the latest US Jobless Claims, PPI and Retail Sales data. Finally on Friday, we get the University of Michigan Consumer Sentiment report. Given that the yield differentials is what is still driving the USDJPY higher, weak US data should lead to a depreciation in the pair while strong data should lead to further upside.

See also the video below