Fundamental Overview
The USD got a boost across the board yesterday on positive expectations about the first trade deal that eventually was revealed to be with the UK. Trump announced that tariffs on cars and steel will be lowered but the most important part was that the 10% “global tariff” will remain in place.
The US officials highlighted that the 10% is going to be the floor and the trade deal with the UK is going to be the baseline for all other deals. There’s a risk now that we reached the peak in de-escalation and other countries might not like the 10% floor, especially the EU. For now, the Federal Reserve Governor Waller’s scenario #2 is playing out.
Recall, that he said 10% or lower tariffs would make him less inclined to cut rates faster. This is now triggering a repricing in interest rates as the market scaled back the easing expectations to 68 bps by year-end. We were at more than 80 bps at the start of the week. It gave also the greenback a boost as the market unwound the crowded dollar shorts.
On the JPY side, the currency has been driven mainly by global events rather than domestic fundamentals. Alongside the Swiss Franc, it’s been the favoured safe haven in the currencies space amid the swings in risk sentiment. On the monetary policy front, the BoJ kept interest rates unchanged as expected and delivered a dovish message.
This was then echoed by BoJ Governor Ueda which placed a great deal on trade developments. In summary, the central bank is likely to go faster on rate hikes in case we get a good trade deal and delay rate adjustments in case the trade deal disappoints.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY continues to erase the April losses and it’s now approaching the major trendline. The sellers will likely lean on the trendline with a defined risk above it to position for a drop back into the 140.00 handle, while the buyers will look for a break higher to increase the bullish bets into the 151.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have now an upward trendline defining the bullish structure on this timeframe. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline, while the sellers will look for a break lower to increase the bearish bets into new lows.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the bullish momentum on this timeframe. 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 extend the pullback into the next trendline. The red lines define the average daily range for today.
This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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