Fundamental
Overview

The USD sold off across the
board on Friday following another soft NFP report. The dovish bets on the Fed
increased as a result and the market is now expecting three rate cuts by
year-end (70 bps). Moreover, we have also a 10% probability of a 50 bps cut in
September but that will likely happen only if we get a soft CPI report on
Thursday. In that case, the greenback will likely weaken further into the FOMC
meeting and might finally get us
out of the range.

Overall, if one zooms out,
the US dollar continues to range although the dovish bets on the Fed keep
weighing on the currency. Part of that could be the fact that the bearish
positioning on the dollar could be overstretched and we might be at the peak of
the dovish pricing.

In fact, if the rate cuts
trigger stronger economic activity in the next months, the rate cuts in 2026
could be priced out and support the dollar. Nevertheless, the trend is still
skewed to the downside, and we might need strong data to reverse it.

On the JPY side, we haven’t
got meaningful changes in the fundamentals. Over the weekend, Japanese
PM Ishiba resigned and that weighed on the yen with the currency gapping
lower on Monday open. But as it generally happens with such political stuff,
the gap was eventually closed and the yen returned trading at pre-Ishiba
resignation levels.

The yen has been rallying
mostly on the back of the dovish expectations for the Fed. For more JPY
appreciation we will need weak US data to increase the dovish bets on the Fed
or a series of higher inflation figures for Japan to price in more rate hikes
than currently expected.

USDJPY
Technical Analysis – Daily Timeframe

USDJPY Daily

On the daily chart, we can
see that USDJPY eventually got rejected once again from the major 148.50 resistance zone. The sellers will
continue to target the major trendline around the 145.50 level,
while the buyers will likely step in around the trendline with a defined risk
below it to position for a rally into the 151.00 handle next.

USDJPY Technical
Analysis – 4 hour Timeframe

USDJPY 4 hour

On the 4 hour chart, we can
see that despite all the important events and data releases, we’ve been stuck
in a range for over a month. Traders will likely continue to play the range by
buying at support and selling at resistance until we get a breakout on either
side.

USDJPY Technical
Analysis – 1 hour Timeframe

USDJPY 1 hour

On the 1 hour chart, we can
see that we have a minor downward trendline defining the bearish momentum on
this timeframe. The sellers will likely continue to lean on the trendline to
keep pushing into new lows, while the buyers will look for a break higher to
position for a rally into the 148.50 resistance. The red lines define the average daily range for today.

Upcoming
Catalysts

Tomorrow we get the US PPI report. On Thursday, we get the US
CPI report and the latest US Jobless Claims figures. On Friday, we conclude the
week with the University of Michigan Consumer Sentiment report.

Watch the video below