FUNDAMENTAL OVERVIEW
USD:
The US dollar rallied strongly across the board on Friday as the very hot NFP gain with higher revisions for the prior
months served as a wake-up call that the Fed could be forced to raise interest
rates. The job gains have been much higher than the estimated breakeven rate
lately. The unemployment rate fell to an unrounded 4.29% vs 4.33% in the prior
month.
Following the NFP report, the market fully priced in a rate hike by
year-end with the total tightening standing at 26 bps right now. We can now
expect the Fed to drop the easing bias at the upcoming meeting, but the focus
will be mostly on the dot plot and forward guidance. Even though a rate hike is
now fully priced in, if the Fed endorses the market pricing, it will
effectively confirm that the bias has now shifted to tightening and might
trigger another rally in the greenback.
This week, the most important event is the US CPI report due tomorrow
(barring a surprising breakthrough in US-Iran negotiations). The question for
markets is now when and how many rate hikes the Fed might deliver by year-end.
Upside surprises would be seen as more hawkish and will likely give the US
dollar a boost. Conversely, lower than expected figures should alleviate some
of the most hawkish fears and might trigger a pullback in the short-term.
JPY:
On the JPY side, we’ve been
getting more
reports saying that the BoJ is going to hike to 1% next week, so that’s now
a done deal. Moreover, the BoJ is expected to pause its bond tapering plan from
next fiscal year, which kind of removes the hawkish flavour of the rate hike as
conditions will remain accommodative.
This rate hike looks driven
more by the weakening Japanese yen as inflation trends haven’t been urging for a
rate hike at all. All in all, the BoJ might deliver a dovish hike which is
likely to keep weighing on the currency.
The market is now pricing
in an 87% chance of a hike next week with a total of 44 bps of tightening by
year-end.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY continues to slowly edge
higher and it’s getting closer to erase the entire drop since April. The
natural target should be the cycle high around the 162.00 handle. If we get
there, we can expect the sellers to step in with a defined risk above the cycle
high to position for a correction into the major trendline. The buyers, on the
other hand, will look for a break higher to increase the bullish bets into new
highs.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have
a minor upward trendline defining the bullish momentum. The buyers will likely
continue to lean on the trendline with a defined risk below it to keep pushing
into new highs. The sellers, on the other hand, will look for a break lower to
pile in for a drop into the 158.00 support zone.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
another minor upward trendline on this timeframe. The buyers will likely
continue to lean on it with a defined risk below it to keep pushing into new
highs, while the sellers will look for a break to extend the pullback into the
next trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we have the US
CPI report. On Thursday, we get the
latest US Jobless Claims figures and the US PPI report. On Friday, we conclude
the week with the University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.
