Basic overview
The USD continues to consolidate around the high levels except against commodity currencies where it extended to new highs. Last week's US inflation data was again disappointing although the data that feeds into the Core PCE overall was mixed as forecasters of the expected to increase 0.13% M / M.
Despite this, Treasury yields have continued to rise and are now back around their post-US election highs. There is some understandable uneasiness in the bond market with the hot US data and the Fed continuing to cut into an accelerating economy.
The Fed is expected to cut today by 25 bps bringing the FFR to 4.25-4.50%. We also get an updated Summary of Economic Projections (SEP) where growth and inflation should be revised upwards, and the Dot Plot is likely to show two rate cuts in 2025. Fed Chairman Powell acknowledged the strength of US data and announced a slowdown in the pace of easing.
This is already priced in as the market expects just two rate cuts in 2025, with the first coming in March at the earliest. Therefore, the market reaction will be driven by deviations from expectations.
On the JPY side, nothing has changed fundamentally, and the market confirmed expectations for no change at this week's BoJ decision. Most of the USDJPY's gains however have been driven by the increase in Treasury yields, so the focus is now on the FOMC decision as it will affect Treasury yields and so USDJPY pair.
USDJPY Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can see that USDJPY pulled back a bit from the recent high heading into the FOMC. From a risk management perspective, the buyers will have a better risk to reward around the 151.90 support to position for a rally into the 160.00 handle next. The sellers, on the other hand, want to see the price break lower to increase the bearish bets to the level of 149.40.
USDJPY Technical Analysis – 4 Hour Time Frame
USDJPY 4 hours
On the 4 hour chart, we can see that the price broke below the up level line of motion that explained the positive trend in this timeframe. This could signal a deeper pullback into the 151.90 support. The sellers are likely to rally around these levels to set up for a drop into the support, while the buyers will look for a rally back above the transition line to set up for new highs.
USDJPY Technical Analysis – 1 hour timeframe
USDJPY 1 hour
On the 1 hour chart, we can see that we have a front line defining the current pullback. It is likely that the sellers will continue this trend to continue targeting the support, while the buyers will look for a higher break to position for new highs. The red lines define the average daily range for today.
Catalysts to come
Todaywe have the FOMC Policy Decision. Tomorrow, we have the BoJ Rate Decision and US Jobless Claims figures. On Friday, we finish the week with Japanese CPI and US PCE data.
