USD:
The US dollar weakened across the board yesterday despite three dissenters
voting for a rate hike. The consensus was that Fed’s Logan and Fed’s Hammack
would prefer a rate increase at this meeting, but we also got Fed’s Kashkari.
I guess the fact that Fed’s Kashkari is a hawkish member, combined with the
roughly 30% probability of a rate hike that was priced in before the release,
led to a reset in positioning, even though nothing has changed in the bigger
picture. So, I would expect the US dollar losses to be faded soon.
Fed Chair Warsh didn’t offer any clues about the next meeting as he
continues to limit forward guidance. Therefore, the next big event will be the
US CPI report on the 12th of August as the data will likely decide whether
the Fed hikes in September or not.
On the geopolitics side, the situation in the Middle East has barely
changed, although Trump’s rhetoric seems to have softened a bit. Nevertheless,
until we get a clear de-escalation, inflation risks will remain skewed to the
upside due to higher energy prices.
JPY:
On the JPY side, the BoJ is
expected to hold interest rates steady tomorrow while upgrading growth
forecasts and potentially near-term inflation outlook. The focus will be on the
forward guidance after a Bloomberg report last week suggested that some BoJ
officials viewed the weaker JPY as adding upside inflation risks and that they
would be open to raise interest rates at a faster pace.
Following the report,
traders brought forward rate hike expectations with now a 70% chance of a move
in October (it was December before the report). The JPY spiked to the upside
but gave back the gains pretty quickly as the overall fundamental picture
remained unchanged.
Keep in mind that Japanese
officials might start looking for stealth interventions to slow down the
depreciation although the trend is unlikely to change without a dovish
repricing in Fed interest rate expectations or a faster BoJ tightening pace.
Traders will focus on BoJ Governor Ueda press conference and look out for hints
or explicit signals about faster tightening.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPYis still consolidating around
the cycle highs. If we get a retest of the 162.85 level, we can expect the
buyers to step in with a defined risk below it to keep pushing into new highs.
The sellers, on the other hand, will want to see the price falling below the
162.85 level to pile in for a drop into the 160.50 support next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price pulled back into the upward trendline that continues to define
the bullish structure. The buyers stepped in around the trendline with a
defined risk below it to position for a rally into new cycle highs. The sellers,
on the other hand, will want to see the price breaking lower to extend the
pullback into the 162.85 level next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the price action might continue to be rangebound. From
a risk management perspective, the buyers will continue to have a better risk
to reward setup around the trendline, while the sellers will gain more
conviction for a bigger correction with a break below the 162.85 level. The red
lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US PCE
price index, the Advance Q2 GDP and the Jobless Claims figures. Tomorrow, we
conclude the week with the Tokyo CPI, the BoJ rate decision and the US Q2
Employment Cost Index. Traders will also keep monitoring US-Iran developments.
This article was written by Giuseppe Dellamotta at investinglive.com.