USDJPY Technical Analysis – Waller’s scenario #2 is playing out. Now what?

Fundamental
Overview

The USD got a boost across
the board yesterday on positive expectations about the first trade deal that
eventually was revealed to be with the UK. Trump announced
that tariffs on cars and steel will be lowered but the most important part was
that the 10% “global tariff” will remain in place.

The US officials
highlighted that the 10% is going to be the floor and the trade deal with the
UK is going to be the baseline for all other deals. There’s a risk now that we
reached the peak in de-escalation and other countries might not like the 10%
floor, especially the EU. For now, the Federal Reserve Governor Waller’s scenario
#2 is playing out.

Recall, that he said 10% or
lower tariffs would make him less inclined to cut rates faster. This is now triggering
a repricing in interest rates as the market scaled back the easing expectations
to 68 bps by year-end. We were at more than 80 bps at the start of the week. It
gave also the greenback a boost as the market unwound the crowded dollar
shorts.

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 erase the April losses and it’s now approaching
the major trendline. The sellers will likely lean on the trendline with a defined risk above it to
position for a drop back into the 140.00 handle, 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 now an upward trendline defining the bullish structure on this
timeframe. From a risk management perspective, the buyers will have a better
risk to reward setup around the trendline, while the sellers will look for a
break lower to increase the bearish bets into new lows.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have a minor upward trendline defining the bullish momentum on this
timeframe. The buyers will likely continue to lean on the trendline to keep pushing
into new highs, while the sellers will look for a break lower to extend the
pullback into the next trendline. The red lines define the average daily range for today.