USD:
The US dollar
spiked to the upside on Friday after the US NFP report showed job growth in August almost tripling the
consensus estimate of 56K. The dollar gains didn’t last long, though, as most
of the NFP-driven moves got faded thereafter.
This happened
because the market focus was not on the NFP report, but on the CPI. The market
pays attention to the data that the central bank is focused on, and the Federal
Reserve is currently focused on inflation.
In fact, just a
day before the NFP report, Fed’s Waller mentioned that he would support keeping
interest rates unchanged at the upcoming FOMC meeting, but a hot CPI would make
him consider a rate hike.
This week, all eyes will be on the US CPI
data. Unless, we get some surprising breakthrough in US-Iran relations, the
price action will likely remain mostly rangebound or a bit positive for the
greenback as traders at some point might start hedging into the CPI release.
A soft or in-line CPI will likely weaken
the dollar as Fed’s Waller mentioned that he won’t consider a rate
hike unless we get a hot CPI.
Conversely, an upside surprise in core monthly inflation data will likely
trigger another rally on a hawkish repricing.
JPY:
On the JPY side, the
currency reportedly strengthened on the back of a hawkish repricing following
BoJ Takata’s comments. I remain sceptical that was the culprit, though, given
that Takata has been the most hawkish member for a long time and there’s been
minimal repricing in interest rate expectations by looking at overnight index swaps.
More likely, we’ve seen deleveraging
in carry trades ahead of the BoJ rate decision given that short positioning on
the yen has been pretty extreme.
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 as
he mentioned that the BoJ will assess the cumulative impact of its previous
rate hikes on the economy and stressed that they have already raised rates five
times during the current tightening cycle.
Now, the September rate
hike is already priced in, so that won’t move the market much. Traders will be
focused on forward guidance and signals about the future tightening 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 USDJPYbroke below the key 155.00
support zone and extended the drop as the selling pressure increased. The major
support around the 152.30 level should now be the next target. If the price
gets there, we can expect the buyers to step in with a defined risk below the
support to position for a rally into the 164.00 handle. The sellers, on the
other hand, will want to see the price breaking lower to increase the bearish
bets into the 150.00 level next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we now
have a downward trendline defining the bearish momentum. If we get a pullback,
we can expect the sellers to lean on the trendline with a defined risk above it
to keep pushing into new lows. The buyers, on the other hand, will want to see
the price breaking higher to pile in for a rally into the next major trendline
around the 159.00 handle and increase the bullish bets on a break above the 155.00
resistance.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as from a risk management perspective, the sellers
will have a better risk to reward setup around the trendline and the 155.00
resistance, while the buyers will need a break above those levels to open the
door for a reversal of the recent trend. The red lines define the average daily range for today.
UPCOMING CATALYSTS
On Thursday, we get the
US PPI report and the US Jobless Claims figures. On Friday, we conclude the
week with the US CPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.