Fundamental
Overview
The US Dollar continues to
consolidate around the highs although it’s stronger against the commodity
currencies. In the bigger picture, the market reached the peak in the repricing
of interest rates expectations, and it will need stronger reasons to price out
the remaining rate cuts for 2025.
In fact, despite lots of
strong US data, the market’s pricing remained largely unchanged around three
rate cuts by the end of 2025. The focus is now on the US CPI report due
tomorrow. It looks like the Fed really wants to cut next week before pausing
for some months. So, we might need an upside surprise in the core inflation
numbers to force them to change plans.
Even if the Fed decides to
cut next week despite a hot CPI, the market will likely scale back further the
rate cuts expectations for 2025 and that could trigger some risk aversion with
the US Dollar rallying across the board. The best scenario would be a soft
report given the overstretched long positions in the greenback. In such a case,
we can expect the US Dollar to selloff across the board.
On the JPY side, the market
pared back the probabilities for a rate hike in December and it now sees a 71% probability
of no change. We haven’t got anything in the meantime, so the latest repricing
might have been due entirely to JPY strength.
This week, we have the
Tankan Index and it should have gained more importance since the dovish BoJ
member Nakamura cited it as something he will look at to decide whether a
rate hike in December would be a good idea.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY is getting closer to the key 151.90 level. That’s where we can
expect the sellers to step in with a defined risk above the level to position
for a drop into new lows. The buyers, on the other hand, will want to see the
price breaking higher to increase the bullish bets into the 160.00 handle.
USDJPY Technical
Analysis – 4 hour Timeframe
USDJPY 4 hour
On the 4 hour chart, we can
see that we have a downward trendline defining the bearish momentum on
this timeframe. The trendline is near the key 151.90 level, so it should
technically strengthen that resistance
zone. The sellers will likely pile in around those levels to position for new
lows, while the buyers will look for a break higher to target new highs.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, we can
see that we’ve been having a very choppy price action recently as the market has
been waiting for the US CPI release before picking a direction. The price broke
above the 150.50 level yesterday and extended the rally into the 151.50 level as
the more aggressive easing measures announced by the Chinese Politburo raised
Treasury yields.
From a risk management perspective,
it’s better to wait for the US CPI release as a soft report is likely to weigh on
the US Dollar, while a hot one should give it a boost. The red lines define the
average daily range for today.
Upcoming
Catalysts
Tomorrow, we have the Japanese Tankan Index and the US CPI report. On Thursday,
we get the latest US Jobless Claims figures and the US PPI. On Friday, we conclude
the week with the BoJ’s Tankan Index.
