Basic Overview
The US dollar fell broadly yesterday after another weak US CPI report and positive jobless claims numbers. The market has not only priced in a September rate cut but has also started to price in some chances of a back-to-back rate cut in November. Overall, we have seen good data releases with the economy slowing but still growing. This should support the soft landing narrative and be positive for risk sentiment.
But even if the US dollar weakens against other major currencies, the Japanese yen will continue to lose ground in this environment, and Japanese officials will not be able to do much to reverse this trend unless fundamentals change. Yesterday, the Japanese intervened immediately after the release of the weak US CPI report, and the strategy now appears to have shifted from buying the yen in times of low liquidity to supporting it in light of weak US data.
Overall, the data shouldn’t change much as we would likely need weak US growth data to see some sustained strength in the yen, although this could be short-lived if it isn’t enough to get the market to anticipate more aggressive rate cuts from the Fed due to recession fears. As long as we have stable global growth and positive risk sentiment, the yen should struggle to maintain any strength.
USD/JPY Technical Analysis – Daily Time Frame
USDJPY Daily
On the daily chart, we can see that the USD/JPY pair fell to the major trend line around the 158.00 level and bounced off it as buyers rushed to buy on the dip. Sellers will want to see the price break the trend line to turn the bias more bearish and increase bets on the 154.00 level after that.
USD/JPY Technical Analysis – 4-hour time frame
USD/JPY 4 hours
On the 4-hour chart, we can clearly see the trend line bounce and support area around the 158.00 level. If the price returns there, we can expect buyers to defend the support and take a position to continue the uptrend. A break above the 160.00 level would give buyers more confidence and increase the bullish momentum to a new cycle high.
USD/JPY Technical Analysis – 1-Hour Time Frame
USDJPY 1 hour
On the 1-hour chart, we can see that there is some consolidation at the moment. If the price breaks the 159.45 level, we can expect more buying pressure to come into the market as the intervention is further erased. The white lines mark the average daily range for today.
Upcoming incentives
Today we wrap up the week with the US Producer Price Index and the University of Michigan Consumer Sentiment Survey.