FUNDAMENTAL OVERVIEW
USD:
The US dollar is now
trading higher against most major currencies after another slate of strong US
data this week and the US-Iran tensions potentially supporting the greenback. The
market is still pricing 57 bps of easing by year-end but the crowded bearish
positioning on the US dollar requires strong reasons for the greenback to keep
falling.
There’s no such reason
right now as we are seeing the US data surprising to the upside. Fed speakers
are also sounding like the bar for further cuts was set high and they would
need very clear improvement on the inflation side to consider a rate cut.
Today, we get the Flash US
PMIs and the US Q4 GDP. The greenback might get another boost from strong data,
especially on the PMIs front. We have also the potential US Supreme Court
decision on Trump’s tariffs. If the Court were to rule against the tariffs, we might
see the US dollar weakening on positive global growth expectations.
JPY:
On the JPY side, we’ve seen
a big “sell the fact” trade following the widely expected Takaichi’s victory in
the lower house elections, but other than that, nothing has changed. In fact,
the data hasn’t been supporting urgent rate hikes as seen also today with further
easing in the Japanese
CPI.
As a reminder, the BoJ held
interest rates steady as expected at the last policy meeting and upgraded
slightly growth and inflation forecasts due to the expansionary fiscal
policies. Governor Ueda didn’t offer anything new in terms of forward guidance
as he just repeated that they will keep raising rates if the economic outlook
is realised.
He also added that April
price behaviour will be a factor to mull over a rate hike. This suggests that
April is when they expect to deliver another rate hike if the data supports
such a move. The market is fully pricing the next hike in June with a total of
51 bps of tightening seen by year-end (two rate hikes).
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY extended the gains after bouncing
near the January’s low and the major trendline. We might be forming a
descending triangle with the neckline around the 152.00 handle. The sellers
will likely lean on the downward trendline with a defined risk above it to
position for a drop back into the 152.00 support. The buyers, on the other
hand, will look for a break higher to increase the bullish bets into the 159.00
handle next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see that the price broke out of the tight range on Wednesday and the bullish
momentum increased as more buyers piled in on the breakout. We have a bullish
structure on this timeframe, so barring major fundamental events, the buyers
should remain in control at least until the downward trendline.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can
see that we have a support zone around the 154.60 level where there’s also the
upward trendline for confluence. From a risk management perspective, the buyers
will have a better risk to reward setup around the trendline to position for a
break above the downward trendline. The sellers, on the other hand, will look
for a break lower to extend the drop into the 153.70 level next. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the US Q4 GDP, the US PCE price index for
December, the US Flash PMIs and the potential US Supreme Court decision on
Trump’s tariffs.
This article was written by Giuseppe Dellamotta at investinglive.com.
