The USD weakened across the
board recently due to a more dovish than expected FOMC decision last week where
the Fed decided to signal a bigger QT taper beginning in June and the Fed Chair
Powell pushing back repeatedly against rate hike expectations. Moreover, the data on Friday
showed that the Fed might indeed just keep rates higher for longer as job and
wage growth soften.
The JPY,
on the other hand, doesn’t have much fundamental support as the BoJ might not
be able to lift interest rates again given the easing inflation rates, although
there might be some short-term support from hawkish messages around the
reduction of the QE programme. All else being equal, the USDJPY pair should
remain in an uptrend both from the Fed’s higher for longer stance and global
growth expectations. The only thing that can change the trend at the moment is much
weaker US data.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily
chart, we can see that USDJPY has been rallying steadily since the US NFP
report as the dip-buyers took advantage of the spike lower to pile in at a strong
support
zone around the 152.00 handle. There’s basically nothing that can stop the pair
from retesting the key 160.00 level as the Japanese officials are unlikely to
intervene again before that level, especially given the obvious failure from
the prior interventions.
USDJPY
Technical Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour
chart, we can see that the break above the key 155.00 handle opened the door
for a rally into the 156.28 swing level. A break above that level should clear
the way for the rally into the 160.00 handle as the buyers will likely pile in
more aggressively. The sellers, on the other hand, don’t have much to work with
before the 160.00 handle, so it would be better to wait for a bearish catalyst
before taking new short positions.
Upcoming
Catalysts
Tomorrow we get the Japanese wage data and
the US Jobless Claims figures while on Friday we conclude the week with the
University of Michigan Consumer Sentiment. Unless we get big surprises, it’s
unlikely that the data will change the market’s expectations that much, so the
price action might remain tentative heading into the US CPI next week, although
the bias should remain bullish.