FundamentalOverview

The USD got a boost acrossthe board on Monday as the US-China tariff relief was a much better thanexpected news. The market started to look at the more hawkish scenario where weget an average 10% global tariff rate and economic activity picks up on aneasing in growth fears and general uncertainty.

That led to a hawkishrepricing in interest rates expectations with the market now seeing 50 bps ofeasing for the Fed by year-end compared to like 120 bps at the peak of thefears in April. The short dollar trade was pretty overcrowded so the unwindingin positioning gave the greenback even more strength.

As we repriced the interestrates expectations, the USD started to lose ground against the major currenciesonce again. We will likely need the market to price in an even less dovish pathfor interest rates to give the greenback another boost. That could come fromeconomic data or hawkish Fed comments.

On the JPY side, thecurrency has been driven mainly by global events rather than domesticfundamentals. Alongside the Swiss Franc, it’s been the favoured safe haven inthe currencies space amid the swings in risk sentiment.

The recent positive mood inthe markets weighed on the Japanese Yen which lost ground against all the majorcurrencies despite the market increasing the expectations for another rate hikethis year. We got a rally in the JPY yesterday although there was no clearcatalyst.

USDJPYTechnical Analysis – Daily Timeframe

On the daily chart, we cansee that USDJPY fell back below the major trendline in what could end up being afakeout. From a risk management perspective, the buyers will have a better riskto reward setup around the upward trendline to position for a rally into the151.00 handle, while the sellers will look for a break lower to increase thebearish bets into the 140.00 handle next.

USDJPY TechnicalAnalysis – 4 hour Timeframe

On the 4 hour chart, we cansee that the price is now filling the Monday gap which could act as support.This is where we can expect the buyers to step in with a defined risk below thegap to position for a rally into new highs. The sellers, on the other hand,will look for a break lower to extend the pullback into the upward trendlinenext.

USDJPY TechnicalAnalysis – 1 hour Timeframe

On the 1 hour chart, we cansee that we have a downward trendline defining the bearish momentum on thistimeframe. The sellers will likely continue to lean on the trendline to pushinto new lows, while the buyers will look for a break higher to increase thebullish bets into the 151.00 handle next. The red lines define the average daily range for today.

UpcomingCatalysts

Today, we get the latest US Jobless Claims figures, the USPPI and the US Retail Sales data. We will also hear from Fed Chair Powell, soit’s worth to keep an eye on that in case he delivers some market movingcomments. Tomorrow, we conclude the week with the Japanese Q1 GDP report andthe University of Michigan Consumer Sentiment survey.

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