Fundamental
Overview
The USD came under renewed
pressure last Thursday following an in-line US CPI report and surprisingly weak initial jobless claims. The jobless claims data stole the
show as initial claims jumped to a new cycle high and the highest level since
2021.
On further analysis, the
claims data might have been just a blip as it was negatively skewed by an unusually
large spike in Texas. Nevertheless, the data kept the weakening labour market
narrative intact and therefore solidified the expectations for three rate cuts
by year-end.
Overall, if one zooms out,
the US dollar has been mostly rangebound even though the dovish bets on the Fed
kept weighing on the currency. Part of that could be the fact that the bearish
positioning on the dollar could be overstretched and we might be at the peak of
the dovish pricing.
In fact, if the rate cuts
trigger stronger economic activity in the next months, the rate cuts in 2026
could be priced out and support the dollar. Nevertheless, the trend is still
skewed to the downside, and we might need strong data to reverse it.
On the JPY side, we haven’t
got meaningful changes in the fundamentals. The yen has been rallying mostly 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.
On Friday, we have the BoJ policy
decision where the central bank is expected to keep interest rates unchanged.
The focus will be on forward guidance and whether the central bank will hint to
an imminent rate hike or signals more than the two rate hikes priced in by the
market by the end of 2026.
USDJPY
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDJPY remains stuck in the same old range as market participants are
now waiting for the FOMC and BoJ decisions to try to break free. If the price drops
to the major trendline, we can expect the buyers to step
in with a defined risk below the trendline to position for a rally into the
151.00 handle. The sellers, on the other hand, will look for a break lower to
extend the drop into the 140.00 handle next.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see more clearly the rangebound price action that has been going on since the beginning
of August. Despite all the dovish catalysts we got for the US dollar, the pair
couldn’t break free. Traders will likely continue to play the range by buying
at support and selling at resistance until we get a breakout on either side.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, there’s
not much we can glean from this timeframe as the choppy price action in the
middle of the range doesn’t give clear levels where to lean onto. On an
intraday basis, the break above the 147.77 swing level could see the buyers
extending the momentum into the 148.50 resistance.
The red lines define the average daily range for today.
Upcoming
Catalysts
Tomorrow we get the US Retail Sales data. On Wednesday, we
have the FOMC policy announcement. On Thursday, we get the lates US Jobless
Claims figures. On Friday, we conclude the week with the Japanese CPI and the
BoJ policy decision. Keep also an eye on WSJ’s Timiraos as he could signal a 50
bps cut in his Fed preview.
Watch the video below
This article was written by Giuseppe Dellamotta at investinglive.com.
