Fundamental
Overview
The USD continues to
consolidate around the highs except against the commodity currencies where it
extended into new highs. The US inflation data last week was once again a
disappointment although the data that feeds into the Core PCE was overall
benign as forecasters expect a 0.13% M/M increase.
Nonetheless, the Treasury
yields have continued to climb and are now back around the post-US election
highs. There’s some understandable uneasiness in the bond market given the hot
US data and the Fed continuing to cut into an accelerating economy.
The Fed today is expected
to cut by 25 bps bringing the FFR to 4.25-4.50%. We will also get the updated
Summary of Economic Projections (SEP) where growth and inflation should be
revised upwards, and the Dot Plot will likely show two rate cuts in 2025. Fed
Chair Powell should acknowledge the strength in the US data and announce a
slowdown in the pace of easing.
This is already priced in
as the market expects just two rate cuts in 2025, with the first one coming in
March at the earliest. Therefore, the market reaction will be driven by
deviations from the expectations.
On the JPY side, nothing
has changed fundamentally, and the market firmed up the expectations for no
change at this week’s BoJ decision. Most of the USDJPY gains though have been
driven by the rise in Treasury yields, so the focus now is on the FOMC decision
as it will impact Treasury yields and therefore the USDJPY pair.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY pulled back a bit from the recent high as we head into the FOMC.
From a risk management perspective, the buyers will have a better risk to
reward setup around the 151.90 support to position for a rally into the 160.00 handle
next. The sellers, on the other hand, will want to see the price breaking lower
to increase the bearish bets into the 149.40 level.
USDJPY Technical
Analysis – 4 hour Timeframe
USDJPY 4 hour
On the 4 hour chart, we can
see that the price broke below the upward trendline that was defining the bullish
momentum on this timeframe. This might be a signal for a deeper pullback into
the 151.90 support. The sellers will likely pile in around these levels to
position for a drop into the support, while the buyers will look for a rally
back above the trendline to position for new highs.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, we can
see that we have a counter-trendline defining the current pullback. The sellers
will likely lean on this trendline to keep targeting the support, while the
buyers will look for a break higher to position for new highs. The red lines
define the average daily range for today.
Upcoming
Catalysts
Today, we have the FOMC Policy Decision. Tomorrow, we have the BoJ Rate
Decision and the US Jobless Claims figures. On Friday, we conclude the week with
the Japanese CPI and the US PCE data.
