Basic overview
The US Dollar is still consolidating around the highs although it is stronger against commodity currencies. In the bigger picture, the market reached a peak in interest rate repricing, and stronger reasons will be needed to price the remaining rate cuts for 2025.
In fact, despite a lot of strong data from the US, the market prices remained largely unchanged around three rate cuts by the end of 2025. The focus is now on the upcoming US CPI report tomorrow. It seems the Fed really wants to cut next week before pausing for several months. Therefore, we may need an upside surprise in the headline inflation numbers to make them change plans.
Even if the Fed decides to cut next week despite a hot CPI, the market is likely to ease further with the rate cut expectations for 2025 and that could slightly risk disruption caused by the general accumulation of the US Dollar. The best conditions would be a soft report with the conditions far too far behind the green. In such a case, we can expect the US Dollar to sell across the board.
On the JPY side, the market shrugged off the odds for a rate hike in December and now sees a 71% chance of no change. We have nothing in the interim, so the latest retracement may have been due to JPY strength.
This week, we have the Tankan Index and it should have been more important from the dovish Nakamura, BoJ member he called it something he will be looking at to decide if a rate hike in December would be a good idea.
USDJPY Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can see that USDJPY is getting closer to the key level of 151.90. That's where we can expect the sellers to step in with marked risk above the level to set up for a drop to lows. The buyers, on the other hand, want to see the price break higher to increase the bullish bets into the 160.00 handle.
USDJPY Technical Analysis – 4 Hour Time Frame
USDJPY 4 hours
On the 4 o'clock chart, we can see that we have a decline line of motion explains the bearish trend in this timeframe. The trend line is near the key level of 151.90, so that should strengthen technically against
zone The sellers will likely rally around these levels to set up for lows, while the buyers will look for a break higher to target new highs.
USDJPY Technical Analysis – 1 hour timeframe
USDJPY 1 hour
On the 1 hour chart, we can see that we have been getting very quick price action recently as the market has been waiting for the release of the US CPI before choosing direction. The price broke above the 150.50 level yesterday and extended the rally to the 151.50 level as the more aggressive easing measures announced by the Chinese Politburo raised Treasury yields.
From a risk management perspective, it is better to wait for the release of the US CPI because a soft report is likely to weigh on the US dollar, and a hot one should give it a boost. The red lines define the
average daily range for today.
Catalysts to come
Tomorrowwe have the Japanese Tankan Index and the US CPI report. On Thursday, we get the latest US jobless claims and US PPI numbers. On Friday, we finish the week with the BoJ Tankan Index.
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