The USD weakened
across the board recently due to a more dovish than expected FOMC decision last
week where the Fed decided to signal a bigger QT taper beginning in June and
the Fed Chair Powell pushing back repeatedly against rate hike expectations.
Moreover, the data on Friday showed that the Fed might indeed just keep rates
higher for longer as job and wage growth soften.

The JPY, on the
other hand, doesn’t have much fundamental support as the BoJ might not be able
to lift interest rates again given the easing inflation rates, although there
might be some short-term support from hawkish messages around the reduction of
the QE programme. All else being equal, the USDJPY pair should remain in an
uptrend both from the Fed’s higher for longer stance and global growth
expectations.

USDJPY
Technical Analysis – Daily Timeframe

On the daily
chart, we can see that USDJPY bounced on the strong support zone around the 152.00 handle where we had the confluence of the trendline and the 61.8% Fibonacci
retracement
level. The buyers bought the dip offered by the miss in the US NFP report as
that didn’t change much for the bigger picture. The sellers don’t have much to
work with at the moment, so they might want to wait for the price to break
below the trendline and the strong support around the 152.00 handle before piling
in more aggressively and target the 146.00 handle.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour
chart, we can see that the pair has now basically reached the key resistance
zone around the 155.00 handle. The price is tentatively breaking above the trendline although
we will likely need an extension above the 155.00 handle to trigger a stronger
rally. That’s when we can expect the buyers to pile in with more conviction and
target the 160.00 handle. The sellers might start stepping in around these
levels to position for a break below the trendline with a better risk to reward
setup but there’s not much at the moment that can give them support.

Upcoming
Catalysts

This week is pretty bare on the data front with just the
Japanese wage data and the US Jobless Claims on Thursday and the University of
Michigan Consumer Sentiment survey on Friday being the only notable releases.
It’s unlikely that they will change the market’s expectations that much, so the
price action might remain tentative heading into the US CPI next week, although
the bias should remain bullish.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

This is clearly one of the most boring weeks so far as the lack of key economic data is keeping the FX markets in tight ranges. The only notable releases will be the US jobless claims on Thursday and the University of Michigan consumer sentiment survey on Friday, but they are unlikely to change anything for the market unless we see big surprises.

We have also many Fed speakers throughout the week but again they are unlikely to change the market’s pricing, on the contrary, they might tone down their language after the recent US NFP report. This leaves us waiting for the US CPI report next week which is going to be a big market-mover.

There is no consensus at the moment but a miss will likely trigger a bigger reaction than a beat in light of the recent softening in the labour market data. In fact, now that is pretty clear that the bar for a rate hike is VERY high, the market will probably need something more than just a high CPI print. Falling wage growth and softening labour market shouldn’t lead to a sustained re-acceleration in inflation, although it might remain higher for longer, in which case the Fed looks to be comfortable to just hold rates steady.

Moreover, higher input price inflation as seen in the ISM PMIs could have the reverse effect this time and instead of being passed on to consumers, businesses might find other ways to decrease costs, which could translate in more layoffs. Some leading labour market indicators like the Conference Board Employment Trends Index (ETI) have been signalling softening in the labour market for quite some time.

We had some fun trading the repricing in interest rates expectations in Q1 2024 as the market went too far with the seven rate cuts expected for 2024 at the beginning of the year. Now that we reached kind of a balance between two and one rate cut, we will need something more to trigger another sustained trend.

This article was written by Giuseppe Dellamotta at www.forexlive.com.