The miss in the US NFP and CPI reports triggered a broad USD selloff as the market expected the Fed to be done with rate hikes after the July FOMC meeting. The US data though keeps on coming in on the hot side with US Retail Sales Control Group beating expectations and the US Initial Claims falling back to cycle low levels. Yesterday, the US PMIs painted a mixed picture though with the Services PMI missing expectations, but remaining in expansion, and the Manufacturing PMI jumping from 46.2 to 49.0, almost rising back into expansion.
On the other hand, the BoJ maintains its dovish stance while core inflation remains at a four decades high. There are few signs of a possible exit from the current policy, with the BoJ board members keeping on dismissing any change, and after the last week’s CPI data and the Reuters report citing sources that the BoJ will leave its policy unchanged at this meeting, it’s hard to expect anything hawkish coming out of the BoJ in the near future.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that after the huge selloff from the 145.00 handle, the USDJPY bounced on the 137.95 support and the 61.8% Fibonacci retracement level to rally back to the 142.00 handle as the US data kept on coming in strong and the expectations for the BoJ to tweak its YCC policy waned. The price is now testing a strong resistance level where we can also find the 61.8% Fibonacci retracement level and the red 21 moving average for confluence. This is where we should see the sellers stepping in to target a new low.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that USDJPY is clearly in an uptrend at the moment with the price printing higher highs and higher lows and the moving averages crossed to the upside. We might see another spike to the upside to tap into the 142.17 resistance where the sellers should step in more aggressively with a defined risk above the level and target a new low.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is struggling to break above a top trendline and if it does, we should see a quick run into the 142.17 resistance. From a risk management perspective, the buyers would have a better setup if they leant on the 140.50 support as a break below it would invalidate the bullish trend and increase the chances of a big selloff to new lows. Alternatively, the buyers may pile in once the price breaks above the 142.17 resistance, but the price would be overstretched at that point and prone to a big pullback. So, only a strong fundamental catalyst can offer such a strong rally from here.
Upcoming Events
Today the only notable event will be the US Consumer Confidence report where the market will want to see if the last month incredibly strong report was just a blip. Another strong report should give the USDJPY some support, while a miss may offer a pullback. Tomorrow, the Fed is expected to hike by 25 bps and the market will be focused on any hint of a pause or further rate hikes. On Thursday, it will be the time for another US Jobless Claims report and another strong beat is likely to lead to another rally, while a big miss should lead to more downside. On Friday, the BoJ is expected to keep everything unchanged, and the market will want to see if they surprise with a tweak to their YCC policy or provide some hawkish forward guidance. Later in the day, we will see the latest US PCE and ECI reports with the wages data probably being more important.
