USDJPY Technical Analysis – Focus on the FOMC and the first trade deal

Fundamental Overview

The USD continues to be supported in the short-term as we head into the FOMC decision and the first trade deal. This has most likely to do with positioning rather than fundamentals. The short dollar trade got very overstretched so positive news on the tariff front and good economic data is providing a pullback.

The downside seems to be limited for now as the Fed is likely to reiterate its commitment for just two rate cuts this year unless the labour market weakens notably. The NFP report last Friday, was much better than expected, so it gives the Fed a reason to keep its neutral stance for now. In the medium term though, the US Dollar should keep on depreciating as the path of least resistance for the Fed remains to cut rates.

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. On the monetary policy front, the BoJ kept interest rates unchanged as expected and delivered a dovish message.

This was then echoed by BoJ Governor Ueda which placed a great deal on trade developments. In summary, the central bank is likely to go faster on rate hikes in case we get a good trade deal and delay rate adjustments in case the trade deal disappoints.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY continues to pull back from the key 140.00 handle. From a risk management perspective, the sellers will have a better risk to reward setup around the major trendline to position for further downside, while the buyers will look for a break higher to increase the bullish bets into the 151.00 handle next.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have a strong support zone around the 144.00 handle where we can also find the upward minor trendline for confluence. This is where we can expect the buyers to step in with a defined risk below the trendline to position for a rally into the major trendline. The sellers, on the other hand, will look for a break below the trendline to invalidate the bullish setup and pile in for a drop back into the 140.00 handle.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, there’s not much else we can add here as the price is testing the support zone. The buyers might want to split their orders and lean on both the support and the trendline. The sellers, on the other hand, will want to wait for a break below the trendline before increasing the bearish bets. The red lines define the average daily range for today.

Upcoming Catalysts

Today, we get the US ISM Services PMI. On Wednesday, we have the FOMC Rate Decision. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the Japanese wage data.

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