USD:
The US dollar weakened
across the board yesterday following surprisingly dovish
comments from Fed Governor Waller. While he adopted a more hawkish stance
at the beginning of the summer, yesterday he sounded less inclined to raise
rates.
He said that he has finally
been seeing signs of disinflation and added that he would not want to raise
rates into a disinflationary environment. He said he would be willing to wait
another month to “give disinflation a chance”. He also mentioned that the
September rate decision will depend on the upcoming CPI report. If the data
comes in hot, he would consider a rate hike.
Rate hike probabilities for
the September meeting dropped significantly, with the market now pricing in just
a 48% chance of a hike. Following Waller’s comments, I think only a hot CPI
report would be enough to push the Fed to hike at the upcoming meeting.
Today, we get the US NFP
report but given the Fed’s focus on inflation, we will likely need significant
upside or downside deviations to see some decent market reaction. In the first
case, I would expect the market to go back to pre-Waller levels. In the second
case, we should see the market extending yesterday’s moves.
JPY:
On the JPY side, the
currency reportedly strengthened on the back of a hawkish repricing following
BoJ Takata’s comments. I don’t think that was the culprit though given that
Takata has been the most hawkish member and there’s been minimal repricing in
interest rate expectations.
More likely, we’ve seen
some profit-taking ahead of the key resistance around the 160.50 level on
USD/JPY or stealth interventions. In fact, some quick moves happened without any
catalyst.
BoJ Governor Ueda has also commented on monetary policyrecently but didn’t offer
anything new. In my opinion, his comments were actually a bit less hawkish.
Now, the September rate
hike is already priced in, so that won’t move the market. Traders will be
focused on forward guidance and signals of potential faster pace. The uptrend
in USD/JPY is unlikely to change without a dovish repricing in Fed interest
rate expectations or a faster BoJ tightening pace.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPYdropped all the way back to
the key 155.00 support zone. The price bounced as dip-buyers stepped in with a
defined risk below the support to position for a rally back into the 160.50
resistance. The sellers, on the other hand, will want to see the price breaking
lower to increase the bearish bets into the 152.50 support next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see that the bearish momentum increased substantially after the break of the
upward trendline, with the price eventually dropping all the way back to the
155.00 support. There’s not much we can glean from this timeframe, so we need
to zoom in to see some more details.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
have a downward trendline defining the bearish momentum. We can expect the
sellers to lean on the trendline with a defined risk above it to target a break
below the support. The buyers, on the other hand, will want to see the price
breaking higher to increase the bullish bets into the 160.50 resistance. The
red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we conclude
the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.