USD:
The US dollar strengthened
across the board on Friday after Fed Chair Warsh delivered a hawkish speech at
the Jackson Hole Symposium.
The key passage was him
saying “I would be hard pressed to describe broad financial conditions as
restrictive”. The market interpreted that as him leaning against the
recent easing in financial conditions and, therefore, retightened them.
This process has, of
course, extended the corrections in the “debasement” trades, with the
US dollar returning to pre-US Treasury announcement levels. The rate hike
probabilities for the September meeting have also increased, with the market now
seeing a 67% chance of a hike.
Warsh has also reiterated
that the Fed is focused solely on inflation now and mentioned that the progress
has been slow. For this reason, I think only a soft US CPI report could bring
the probabilities below 50% and deter the Fed from hiking at the upcoming
meeting.
If the probabilities stay
at or above 50%, the Fed might be forced to hike regardless because failure to
do so would send a dovish message.
JPY:
On the JPY side, the
currency strengthened reportedly on the back of hawkish BoJ Takata’s comments. I
don’t think that was the culprit as Takata is a known hawk. In fact, interest
rate expectations remained largely unchanged. More likely, we’ve seen some
profit-taking ahead of the key resistance around the 160.50 level on USD/JPY.
BoJ Governor Ueda has also commented
on monetary policy and didn’t offer anything new. On the contrary, his
comments were a bit less hawkish compared to market’s expectations. As a
reminder, the September rate hike is already priced in, so the market won’t
care about that.
Traders will be focused on
forward guidance and signals of potential faster pace. The trend 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 USDJPYhas basically reached the key
resistance zone around the 160.50 level. That’s where we can expect the sellers
to step in with a defined risk above the resistance to position for a drop into
the 155.00 handle. The buyers, on the other hand, will want to see the price breaking
higher to increase the bullish bets into the 164.00 level next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have
an upward trendline defining the bullish momentum. The buyers will likely continue
to lean on it with a defined risk below it to keep pushing into new highs. The
sellers, on the other hand, will need a break to gain more conviction and pile
in for a drop into the 155.00 handle next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can
see more clearly the rejection around the trendline and the key swing low
around the 159.43 level. The sellers will want to see the price breaking below
this support to extend the drop into new lows, while the buyers will remain in
control as long as the price stays above the trendline. The red lines define the
average daily range for today.
UPCOMING CATALYSTS
Today, we get the
US ADP report. Tomorrow, we have Fed’s Waller, the US Jobless Claims and the US
ISM Services PMI. On Friday, we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.