FUNDAMENTAL OVERVIEW
USD:
The US dollar continues to be supported following the hawkish Fed dot plot
last week as the central bank’s tightening bias led to a hawkish repricing in
interest rate expectations.
As a reminder, the Fed delivered a hawkish surprise by projecting a rate
hike this year (the consensus was for no cuts or hikes). The market increased
rate hike bets with now 38 bps of tightening priced in by year-end. There’s a 32%
chance of a hike already in July and 68% probability of a move in September.
The economic data and financial markets will now guide the Fed as Warsh
stated that “financial markets perform best when they react to incoming data
and are less efficient when they have to ask how the Federal Reserve will react
to the incoming data”. He added that “financial markets are the most important
source of information to guide the central bank”.
Trump also posted on Truth Social and, unlike his usual stance under Fed
Chair Powell, did not object to the Fed’s decision. In fact, he said that “rate
hikes could happen,” which sounds like a green light for Warsh and the Fed to
do whatever they deem necessary.
The signal is that the Fed is finally looking to deliver on its price
stability mandate and bring inflation back to the 2% target that it’s been
missing since 2021. If the data says they need to hike, they will. This
should keep supporting the greenback until the next set of economic data.
JPY:
On the JPY side, we started
to see a few spikes recently as the USD/JPY pair reached the highest levels
since 2024. It looks more like profit-taking near cycle highs than outright
intervention given the size of the moves.
As a reminder, the BoJ
hiked the policy rate to 1.00% as widely expected at the last meeting and
announced the pause to the bond tapering programme from next fiscal year.
The forward guidance
remained the same with the BoJ looking to continue the normalisation process,
raising the policy interest rate and adjust the degree of monetary
accommodation “in response to developments in economic activity and prices as
well as financial conditions”.
BoJ’s Uchida didn’t offer
anything new in the press conference reiterating the central bank’s willingness
to raise rates further if economic conditions align. The divergence with the
Fed will continue to keep the USD/JPY pair skewed to the upside until the US
data starts to point in the other direction.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
USDJPY – daily
On the daily chart, we can
see that USDJPY is trading near the 2024
highs and it’s struggling to break through likely due to intervention fears. A
break above the 161.95 level would take the pair to the highest level since
1986. We can expect the sellers to continue to step in around these levels with
a defined risk above the 162.00 handle to position for a drop into the 158.00
support. The buyers, on the other hand, will look for a break to increase the bullish
bets into new highs.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDJPY – 4 hour
On the 4 hour chart, we have
a minor upward trendline and a support zone around the 160.50 level. This is
going to be a key support now. If we get a pullback, we can expect the buyers
to step in around the support with a defined risk below it to keep pushing into
new highs. The sellers, on the other hand, will look for a break lower to pile
in for a drop back into the 158.00 handle next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDJPY – 1 hour
On the 1 hour chart, there’s
not much we can add here as from a risk management perspective, the buyers will
have a better risk to reward setup around the trendline. The sellers, on the
other hand, will need the price to break below the support to open the door for
new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
Flash PMIs. On Thursday, we get the US Jobless Claims data and the US PCE
report. On Friday, we conclude the week with the Tokyo CPI and the final
University of Michigan consumer sentiment survey.
