The USD weakened across the
board yesterday following another soft US
CPI report and benign Jobless
Claims figures. The market not only fully priced in a rate cut in September
but also started to price in some chances of a back-to-back rate cut in
November. Overall, we had a goldilocks data release with an economy that is
slowing but still growing. This should support the soft-landing narrative and
be positive for the risk sentiment.

Even if the US Dollar
weakens against the other major currencies though, the JPY in this environment
should keep losing ground and the Japanese officials can’t do much to reverse
the trend unless the fundamentals change. Yesterday, the Japanese intervened
right after the soft US CPI report as the strategy now seems to have shifted
from buying the Yen in low liquidity times to propping it up on soft US data.

Overall, the data shouldn’t
have changed much as we will likely need weak US growth data to see some sustained
Yen strength, although it might be short lived if it’s not enough to make the
market to price in more aggressive rate cuts for the Fed on fears of a
recession. As long as we have stable global growth and positive risk sentiment,
the JPY should find it hard to maintain any strength.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDJPY dropped all the way back to the key trendline
around the 158.00 handle and bounced off of it as the buyers piled in to buy
the dip. The sellers will want to see the price breaking below the trendline to
turn the bias more bearish and increase the bets into the 154.00 handle next.

USDJPY Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the bounce on the trendline and the support
zone around the 158.00 handle. If the price gets back there, we can expect the buyers
to defend the support and position for the continuation of the uptrend. A break
above the 160.00 handle should give the buyers even more conviction and
increase the bullish momentum into a new cycle high.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have some consolidation at the moment. If the price breaks above the
159.45 level we can expect even more buying pressure coming into the market as
the intervention gets erased further. The white lines define the average daily range for today.

Upcoming
Catalysts

Today we conclude the week with the US PPI and the University of Michigan
Consumer Sentiment survey.

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