As the 2024 high gives way, USD/JPY extends into the highest levels since 1986. What next?
FUNDAMENTAL OVERVIEW
USD:
The US dollar has been
supported since the last FOMC decision as the more hawkish than expected dot
plot led to a quick repricing in interest rate expectations with traders increasing
rate hike probabilities.
We saw some minor hawkish
repricing yesterday as the total tightening expected by year-end rose to 37 bps
vs 32 bps seen on Monday. We haven’t got any meaningful catalyst though, so
that might have been just daily noise.
The focus is now on the US
NFP and CPI reports ahead of the July FOMC meeting. The market is pricing in a
36% probability of a rate hike in July. Data in line or lower than forecasts
should lead to some dovish repricing and weigh on the greenback in the
short-term. Conversely, stronger than expected figures will likely boost the US
dollar further.
JPY:
On the JPY side, nothing
has changed fundamentally but the break above the 2024 high on USD/JPY increased
the bearish momentum. There’s been some verbal intervention but nothing really
strong yet.
On the monetary policy
front, 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”.
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 has finally broke out of the
recent consolidation and reached the highest levels since 1986. The breakout acted
as a catalyst and more buyers started to pile in to extend the rally into new
highs. The old resistance around the 161.95 level will now likely act as
support.
If we do 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 want to
see the price breaking lower to pile in for a drop into the major upward trendline
around the 158.00 handle.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have
a minor upward trendline defining the bullish momentum. The buyers will likely
continue to lean on the trendline with a defined risk below it to keep pushing
into new highs. The sellers, on the other hand, will look for a break to extend
the pullback into the support.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here although from a risk management perspective, the
buyers will have a better risk to reward setup around the trendline and the
support. The sellers, on the other hand, should wait for the price to fall back
below the 161.95 level to start positioning into new lows. The red lines define
the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
ADP report, the US ISM Manufacturing PMI and Fed Chair Warsh speaking at the
ECB Forum in Sintra. Tomorrow, we conclude with the US NFP report, and the US
Jobless Claims figures.
This article was written by Giuseppe Dellamotta at investinglive.com.