Basic Overview
Last Thursday, The Wall Street Journal’s Timiraos published an article that seemed to suggest that a 50 basis point cut was still under discussion. The market responded by raising the odds of a 50 basis point cut to about 40% from 13% before the news.
Nick Timeraos is considered a Fed “insider,” so the market is paying attention to everything he writes about potential Fed decisions. Since then, the 50bps cut camp has become more vocal, and the odds of a 50bps Fed cut at the next meeting are now around 70% for a total of 120bps of easing by year-end.
This new pricing has led to a broad weakening of the US dollar as US Treasury yields have fallen further. But once the Fed decision is finalized, the focus will return to economic data. If we start seeing better numbers, the market could start to taper off the aggressive monetary easing expected in 2025 to support the US dollar in the near term.
For the Bank of Japan, the market sees a 96% chance of no change at the next meeting and a total tightening of 8 basis points by the end of the year. The central bank is likely to wait until the Fed advances a bit in its easing cycle to avoid too much market volatility.
USD/JPY Technical Analysis – Daily Time Frame
USDJPY Daily
On the daily chart, we can see that the USD/JPY pair is now testing the key level of 140.20. Here we can expect buyers to step in with risks set below this level for a move towards the 150.00 level. On the other hand, sellers will want to see the price drop to the 137.00 level to increase bearish bets towards the 137.00 level after that.
USD/JPY Technical Analysis – 4-hour time frame
USD/JPY 4 hours
On the 4-hour chart, we can see that we have a bearish trend line that defines the current bearish momentum. Sellers will likely rely on the trend line with risk defined above it to place a position to break the support at 140.20 with a better risk-reward setup. On the other hand, buyers will want to see the price move higher to increase bullish bets on the next major trend line around the 145.00 level.
USD/JPY Technical Analysis – 1-Hour Time Frame
USDJPY 1 hour
On the 1-hour chart, we can see that we also have the 50% Fibonacci retracement level adding confluence to the trend line. There is not much to add here as buyers will be looking for a breakout to the upside, while sellers will be relying on the trend line to break to new lows. The red lines mark the average daily range for the day.
Upcoming incentives
Today, we get US retail sales and US industrial production data. Tomorrow, we get the FOMC interest rate decision. On Thursday, we get the latest US jobless claims figures. On Friday, we wrap up with Japanese CPI data and the Bank of Japan interest rate decision.