Fundamental
Overview
The USD got a boost across
the board on Monday as the US-China tariff relief was a much better than
expected news. The market started to look at the more hawkish scenario where we
get an average 10% global tariff rate and economic activity picks up on an
easing in growth fears and general uncertainty.
That led to a hawkish
repricing in interest rates expectations with the market now seeing 50 bps of
easing for the Fed by year-end compared to like 120 bps at the peak of the
fears in April. The short dollar trade was pretty overcrowded so the unwinding
in positioning gave the greenback even more strength.
As we repriced the interest
rates expectations, the USD started to lose ground against the major currencies
once again. We will likely need the market to price in an even less dovish path
for interest rates to give the greenback another boost. That could come from
economic data or hawkish Fed comments.
On the JPY side, the
currency has been driven mainly by global events rather than domestic
fundamentals. Alongside the Swiss Franc, it’s been the favoured safe haven in
the currencies space amid the swings in risk sentiment.
The recent positive mood in
the markets weighed on the Japanese Yen which lost ground against all the major
currencies despite the market increasing the expectations for another rate hike
this year. From a risk management perspective, the buyers will have a better risk
to reward setup around the upward trendline to position for a rally into the
151.00 handle, while the sellers will look for a break lower to increase the
bearish bets into the 140.00 handle next.
USDJPY Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that the price is now filling the Monday gap which could act as support.
This is where we can expect the buyers to step in with a defined risk below the
gap to position for a rally into new highs. The sellers, on the other hand,
will look for a break lower to extend the pullback into the upward trendline
next.
USDJPY Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a downward trendline defining the bearish momentum on this
timeframe. The sellers will likely continue to lean on the trendline to push
into new lows, while the buyers will look for a break higher to increase the
bullish bets into the 151.00 handle next. We will also hear from Fed Chair Powell, so
it’s worth to keep an eye on that in case he delivers some market moving
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