Basic Overview
The US dollar has been steadily rising against most major currencies over the past two weeks, although the catalyst behind the move has been unclear. One good argument is that most of the moves we have seen over the past 10 days have been driven by debt relief as a result of the strong yen.
Essentially, the carry trade pressure has had an impact on all other markets. Given the size of the recent appreciation of the yen and its correlation to many other markets, it seems that this may indeed be the cause.
From a monetary policy perspective, nothing has changed as the market still expects at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
Data continues to suggest that the US economy remains resilient with inflation slowly coming back to target. Overall, this should continue to support the soft landing narrative and be positive for overall risk sentiment.
On the other hand, the Japanese yen has been in a frenzy lately as it strengthened significantly against all major currencies. The intervention and break of the main trend line in the USD/JPY pair helped, and eventually the pressure on carry trades could have exacerbated the move.
But fundamentally, there is little support for this trend. In the bigger picture, stable global growth and generally positive risk sentiment are driving the yen lower. The yen will likely need weak US growth data to see some sustained strength amid recession fears and expectations of more aggressive rate cuts.
USD/JPY Technical Analysis – Daily Time Frame
USDJPY Daily
On the daily chart, we can see that the USD/JPY pair eventually bounced back to the key 152.00 support area and extended its gains after some good US data. Buyers stepped in around the support to position themselves for a fresh session high. Sellers will need to see the price break the support to increase bearish bets to the next key level at 146.50.
USD/JPY Technical Analysis – 4-hour time frame
USD/JPY 4 hours
On the 4-hour chart, we can see that sellers have relied on the downtrend line to pave the way for a break of support with a better risk-reward setup. Buyers will want to see the price break the trend line and the 154.75 high to gain more confidence and increase bullish bets towards the 158.00 level.
USD/JPY Technical Analysis – 1-Hour Time Frame
USDJPY 1 hour
On the 1-hour chart, we can see that we have a strong support area around the 153.00 level where the price has been rejected several times in the past few days. This is where buyers are likely to step in with a risk defined below the area to place a position for a break above the trend line.
On the other hand, sellers will want to see the price drop to increase bearish bets and target a break of the major support at 152.00. The red lines mark the average daily range for the day.
Upcoming incentives
Tomorrow we have the US Job Openings report and the US Consumer Confidence report. On Wednesday we have the Bank of Japan’s monetary policy decision, the US Labor Cost Index and the FOMC monetary policy decision. On Thursday we get the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Finally, on Friday we wrap up the week with the US Non-Farm Payrolls report.