Fundamental Overview
The USD got a boost across the board on Monday as the US-China tariff relief was a much better than expected news. The market started to look at the more hawkish scenario where we get an average 10% global tariff rate and economic activity picks up on an easing in growth fears and general uncertainty.
That led to a hawkish repricing in interest rates expectations with the market now seeing 50 bps of easing for the Fed by year-end compared to like 120 bps at the peak of the fears in April. The short dollar trade was pretty overcrowded so the unwinding in positioning gave the greenback even more strength.
As we repriced the interest rates expectations, the USD started to lose ground against the major currencies once again. We will likely need the market to price in an even less dovish path for interest rates to give the greenback another boost. That could come from economic data or hawkish Fed comments.
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.
The recent positive mood in the markets weighed on the Japanese Yen which lost ground against all the major currencies despite the market increasing the expectations for another rate hike this year. We got a rally in the JPY yesterday although there was no clear catalyst.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY fell back below the major trendline in what could end up being a fakeout. From a risk management perspective, the buyers will have a better risk to reward setup around the upward trendline to position for a rally into the 151.00 handle, while the sellers will look for a break lower to increase the bearish bets into the 140.00 handle next.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is now filling the Monday gap which could act as support. This is where we can expect the buyers to step in with a defined risk below the gap to position for a rally into new highs. The sellers, on the other hand, will look for a break lower to extend the pullback into the upward trendline next.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a downward trendline defining the bearish momentum on this timeframe. The sellers will likely continue to lean on the trendline to push into new lows, while the buyers will look for a break higher to increase the bullish bets into the 151.00 handle next. The red lines define the average daily range for today.
Upcoming Catalysts
Today, we get the latest US Jobless Claims figures, the US PPI and the US Retail Sales data. We will also hear from Fed Chair Powell, so it’s worth to keep an eye on that in case he delivers some market moving comments. Tomorrow, we conclude the week with the Japanese Q1 GDP report and the University of Michigan Consumer Sentiment survey.
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This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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