Fundamental
Overview
The USD got a boost
yesterday from the strong US PMIs which lifted Treasury yields and put in
question the rate cut in September with the probability falling to roughly 60%.
I would argue that the details weren’t that bad on the
inflation front but overall good for the growth side.
The good part is that in
either case the trend is unlikely to change as both drivers are supportive for
more upside. The trend will likely change only when we start to get some
recessionary US data that will make the market to price in a more aggressive
rate cut path.
Moreover, the Yen doesn’t
even get some help from domestic data as inflation eased further making a rate
hike from the BoJ unlikely.
USDJPY Technical
Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY breached the key swing level at 156.80 following the strong US
PMIs yesterday. This breakout should have opened the door for a rally into the
158.00 handle. The ultimate target remains the intervention level at 160.00.
That’s
where we will likely see a strong rejection as the buyers will want to square
their positions and the sellers will try to step in with a defined risk above
the level to position for a drop back into the trendline.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, we can
see that we now have a good support
around the 156.80 level where we can find the trendline for confluence. If we get a pullback into the
trendline, we can expect the buyers to step in with a defined risk below it to
position for a rally into the 158.00 handle with a better risk to reward setup.
Alternatively, if the momentum from the PMIs remains strong, the buyers can
also pile in once we get a break above the 157.20 high.
The
sellers, on the other hand, will want to see the price breaking below the 156.80
support to invalidate the bullish setup and position for a drop back into the
156.00 handle. It’s hard to see such a scenario at the moment though.
Upcoming
Catalysts
There are no
catalysts today so the market should trade based on yesterday’s US PMI.
