USDJPY Technical Analysis – The greenback is back

Fundamental Overview

The USD got a boost across the board yesterday as the US-China tariff relief was much better than expected. The market is now looking at the more hawkish scenario where we get an average 10% global tariff rate and economic activity picks up on an easing in growth fears and general uncertainty.

This is leading to a hawkish repricing in interest rates expectations with the market now seeing 56 bps of easing for the Fed by year-end compared to like 120 bps at the peak of the fears in April. The short dollar trade was also pretty overcrowded so the unwinding in positioning is giving the greenback even more strength.

On the JPY side, the currency has been driven mainly by global events rather than domestic fundamentals. Alongside the Swiss Franc, it’s been the favoured safe haven in the currencies space amid the swings in risk sentiment. The recent positive mood in the markets weighed on the Japanese Yen which lost ground against all the major currencies despite the market increasing the expectations for another rate hike this year.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY broke above the major trendline yesterday following the much better than expected US-China tariff relief. The buyers piled in on the breakout and will now target the 151.00 handle. The sellers, on the other hand, will want to see the price falling back below the trendline to position for a drop into the 140.00 handle next.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have now an upward trendline defining the bullish momentum on this timeframe. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline, while the sellers will look for a break lower to increase the bearish bets into new lows.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, there’s not much else we can add here as the buyers will look for a bounce around the trendline, while the sellers will look for a break lower. If the bullish momentum stays strong, we can expect the buyers to increase the bullish bets on the break of the recent high at 148.60. The red lines define the average daily range for today.

Upcoming Catalysts

Today, we have the US CPI report. On Thursday, we get the latest US Jobless Claims figures, the US PPI and the US Retail Sales data. On Friday, we conclude the week with the Japanese Q1 GDP report and the University of Michigan Consumer Sentiment survey.

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