KEY POINTS:
- US dollar weakened after soft US ISM Manufacturing PMI
- Market pricing for the Fed remained unchanged around 62 bps of easing expected by year-end
- US NFP the main event this week
- Japanese inflation remains above target but not calling for urgent action
- BoJ still focused on wage growth
- Traders expect roughly two rate hikes from the BoJ this year
FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened
across the board yesterday following a soft US
ISM Manufacturing PMI. The data wasn’t really surprising, but after a
strong rally in the European session, the greenback gave back all the gains.
In terms of macro, nothing
has changed in these two weeks. The latest NFP and CPI reports came both on the
softer side and the market is still pricing 62 bps of easing by year-end. The
data in December was taken with a pinch of salt given the shutdown related
issues, but the next releases will give us a clearer picture.
The market expects the Fed
to cut in March at the earliest, so we will need very soft data this month to
force them to act sooner. Nonetheless, if the data continues to come in on the
softer side, the market will likely increase the total easing for 2026 and that
should weigh on the US dollar.
On the other hand, if the
data shows strength, traders will likely pare back their rate cut bets and that
will likely offer the greenback some support.
JPY:
On the JPY side, the latest
Tokyo
CPI data surprised to the downside. Inflation has been hovering above the
BoJ’s 2% target but never called for urgent actions. The central bank is still
placing a great deal on wage growth, so wage data and spring wage negotiations
remain key.
The market is pricing 42
bps of tightening this year, which translates into roughly two rate hikes. Traders
don’t expect any policy action before June. Therefore, we will need some strong
wage data or surprisingly high inflation prints to see traders bringing forward
rate hike expectations.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that we have a strong support zone around the 154.50 level where the price
got rejected from several times in the past weeks. From a risk management
perspective, the buyers will have a better risk to reward setup around the
support to position for a rally into the 160.00 handle next. The sellers, on
the other hand, will want to see the price breaking lower to pile in for a drop
into the major trendline around the 151.00 level.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see that we’ve had a messy price action lately, not giving us any clear level where
to lean on. We have a minor upward trendline that could act as support. The
buyers will likely step in there with a defined risk below the trendline to
position for a rally into new highs, while the sellers will look for a break
lower to increase the bearish bets into the 154.50 support.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can
see that we’ve been trading inside what looks like a broadening wedge. The
buyers will likely keep on leaning on the bottom trendline to keep pushing into
new highs, while the sellers will either look for a breakout or keep shorting around
the top trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the US ADP, the US ISM Services PMI and the US Job Openings
data. On Thursday, we get the Japanese wage data and the latest US Jobless
Claims figures. On Friday, we conclude the week with the US NFP report.
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This article was written by Giuseppe Dellamotta at investinglive.com.
