USDJPY Technical Analysis – Dollar shorts unwind as de-escalation gathers steam

Fundamental
Overview

The USD continues to be
supported amid the ongoing de-escalation in trade wars. This has most likely to
do with positioning rather than fundamentals. The short dollar trade got very
overstretched so positive news on the tariffs front is providing a pullback. In
the medium term, 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 war 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 an upward minor trendline defining the bullish momentum. If we
get a pullback, the buyers will likely lean on the trendline to position for a
rally into the major trendline, while the sellers will look for a break lower
to increase the bearish bets into the 140.00 handle next.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, there’s
not much else we can add here as chasing the rally at these levels doesn’t look
good. We have also the US NFP report today which could provide a pullback in
case the data is weaker than expected. The red lines define the average daily range for today.

Upcoming
Catalysts

Today, we conclude the week with the US NFP report but
watch out for tariff related news as that’s what really matters for the market
now.