Fundamental
Overview
The USD extended the losses
yesterday following dovish comments from Fed’s Kashkari as he basically got in
line with other members for a rate cut in September. This change of heart was
triggered by the softer than expected NFP report last Friday.
Overall, the data wasn’t as
bad as one might think by just looking at the reaction but given that we were
positioned for a strong report and the pricing got more hawkish after the Fed’s
decision, the weaker data was enough to trigger a quick repricing.
In fact, the market is now
pricing 60 bps of easing by year-end compared to just 35 bps before the NFP
release. It’s highly likely that more benign data will see Fed Chair Powell
opening the door for a cut in September at the Jackson Hole Symposium.
Nonetheless, the ISM Services PMI this week showed a new high
in the prices index and the US jobless claims today could trigger a rethink on
the actual softness of the labour market in case we get strong data. Of course,
weak figures will just solidify market’s expectations and weigh on the
greenback further.
On the JPY side, we haven’t
got anything new since the BoJ left interest rates unchanged and revised
inflation forecasts higher as expected at the last meeting. The yen, after some
depreciation caused by dovish Governor Ueda’s comments, rallied strongly on the
back of the soft NFP report and the dovish repricing for the Fed.
For more JPY appreciation
we will need weak US data to increase the dovish bets on the Fed or higher
inflation figures for Japan to price in more rate hikes than currently
expected. Other potential positive driver could be signs of more fiscal support
as that will likely put upward pressure on inflation.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY continues to edge lower after the big selloff from the 151.00
handle triggered by the soft NFP report. The target for the sellers should be
the major trendline around the 144.50 level. That’s
where we can expect the buyers to step in with a defined risk below the
trendline to position for a rally back into the resistance.
USDJPY Technical
Analysis – 4 hour Timeframe
USDJPY 4 hour
On the 4 hour chart, we can
see that eventually the price pulled back into the broken trendline where the
sellers piled in with a defined risk above it to position for the continuation
of the downtrend. The buyers will likely wait for the price to come into the 146.00
handle before stepping in for a rally back into the 151.00 handle.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, we can
see that the price is now running to the downside and from a risk management perspective,
it’s hardly ever a good idea chasing the move without a catalyst. Therefore,
the buyers will be better off to wait for the price to come into the 146.00
handle, while the sellers will look for a break below that level to increase
the bearish bets into new lows. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we get the latest US Jobless Claims
figures.
