USD/JPY struggles near the highest levels since 1986 amid intervention fears
FUNDAMENTAL OVERVIEW
USD:
The US dollar has been 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). There are now 36 bps
of tightening priced in by year-end. There’s a 34% chance of a hike already in
July and 68% probability of a move in September.
You can notice that there’s been a slightly dovish repricing in the last
couple of days. One of the reasons could be the huge selloff in oil prices
which have now reached pre-war levels. The other reason is that the hawkish repricing
has now run its course and for more we will likely need upside surprises in the
NFP and CPI reports.
Although the greenback should remain supported into the data, we might
start to see some consolidation or even pullbacks if don’t get any meaningful
catalyst before the key US 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
On the daily chart, we can
see that USDJPY continues to consolidate near
the 2024 highs as 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
On the 4 hour chart, we have
a minor upward trendline and a support zone around the 160.50 level. If we get
a pullback, we can expect the buyers to step in around the trendline and the
support with a defined risk below the support to keep pushing into new highs.
The sellers, on the other hand, will need the price to break below the support
to open the door for a potential correction into the 158.00 support next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
have another minor upward trendline that will likely act as support for now.
The buyers will likely continue to lean on the trendline with a defined risk
below it to keep pushing into new highs, while the sellers will look for a
break lower to extend the pullback into the next trendline. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US
Jobless Claims data and the US PCE report. Tomorrow, we conclude the week with
the Tokyo CPI and the final University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.