Fundamental
Overview
The USD recovered most of
the losses triggered by Powell’s dovish tilt at the Jackson Hole Symposium. Traders
are now focused on the US labour market data due next week that will culminate
with a crucial NFP report on Friday. In fact, the data will influence interest
rates expectations greatly.
Right now, the market is
pricing an 84% probability of a rate cut in September and a total of 54 bps of
easing by year-end. Strong data might take the probability for a September cut
towards a 50/50 chance but will certainly see a more hawkish repricing further
down the curve and support the dollar. Soft data, on the other hand, will
likely see traders increasing the dovish bets with a third cut by year-end
being priced in and weighing on the greenback.
On the JPY side, the
currency has been rallying on the back of the dovish expectations for the Fed. For
more JPY appreciation we will need weak US data to increase the dovish bets on
the Fed or a series of higher inflation figures for Japan to price in more rate
hikes than currently expected. Another potential positive driver could be signs
of more fiscal support as that will likely put upward pressure on inflation.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY continues to range beneath the major 148.50 resistance zone as traders are waiting
for the key US data next week. The sellers will likely continue to lean on the resistance
to keep targeting the major trendline around the 145.50 level,
while the buyers will look for a break higher to pile in for a rally into the
151.00 handle next.
USDJPY Technical
Analysis – 4 hour Timeframe
USDJPY 4 hour
On the 4 hour chart, we can
see that we’ve been stuck in a range for the entire month as traders have been
waiting for Powell’s speech and now for the key data releases next week.
There’s not much we can glean from this timeframe, so we need to zoom in to see
some more details.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, we can
see that we have a minor upward trendline defining the bullish momentum on this
timeframe and a minor resistance around the 147.95 level. The buyers will
likely continue to lean on the trendline to keep pushing into new highs, while
the sellers will look for a break lower to increase the bearish bets into new
lows. The red lines define the average daily range for today.
Upcoming
Catalysts
Tomorrow we get the latest US Jobless Claims
figures. On Friday, we conclude the week with the Tokyo CPI and the US PCE
price index.