The USD weakened lately following a beat in the NFP data. The weak details, such as a higher unemployment rate and lower average weekly hours, contributed to this shift towards less hawkish expectations. A looser labour market should bring down inflation faster. Additionally, the miss in the ISM Services PMI, particularly the lower prices paid sub-index, further fuelled expectations of a decrease in core inflation.
While the big miss in Jobless Claims was met with scepticism due to seasonal adjustments, the Continuing Claims indicated even more improvement, suggesting that workers are finding jobs quickly after being unemployed. Overall, the significant hawkish sentiment that emerged in May, driven by strong economic data, has started to reverse. This shift is evident as Fed members expressed a preference for a pause and recent economic data has been disappointing.
All of the above should have resulted in a selloff for the USDJPY pair but what we have seen is just some rangebound price action. Looks like the “higher for longer” expectations are lifting both Treasury yields and consequently the USDJPY pair as the core inflation remains stubbornly high as we’ve seen with yesterday’s US CPI report.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the USDJPY pair went into a consolidation lately with the buyers leaning on the red 21 moving average to position for another push to the upside. The sticky US core inflation, the expected hawkish FOMC rate skip and the expected dovish BoJ on Friday, may take the pair up to the 142.17 resistance where we can also find the 61.8% Fibonacci retracement level. If the price gets there, we will likely find strong sellers looking to position for some downside.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the rangebound price action of the past two weeks as the market remains uncertain on the next move given that we may be both at the end of the Fed’s hiking cycle or at another beginning if inflation remains stubbornly high. The recent weak details in the labour market data could suggest that we might be at the end, but we need more data to confirm that.
A good level for the buyers in case the USDJPY pulls back even more will be the support at 137.95 where we can also find the 38.2% Fibonacci retracement level and the upward trendline. The sellers, on the other hand, are likely to position for shorts both at the 142.17 resistance and a break to the downside of the upward trendline.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see the range highlighted with a blue box. Technically, we can expect more buyers piling in if the price breaks the top of the range and a rally towards the 142 resistance. If we get a downside break though, the sellers will have less room before encountering the next strong support at 137.95.
Today we have the FOMC policy decision and in the next days the highlights will be the US Jobless Claims, the BoJ policy decision and the University of Michigan Consumer sentiment survey. If we get more hawkish than expected stuff from the Fed and the data remains strong, we should see the USDJPY rallying. On the other hand, if the Fed delivers on expectations or sounds dovish and the data disappoints, then we may see the USDJPY falling.
