FUNDAMENTAL ANALYSIS The JPY is currently trading in a narrow range of 159.30 against the USD in the European trading session today, Thursday. The USD/JPY currency pair is consolidating ahead of Fed Chairman Kevin Warsh's speech at the Jackson Hole Symposium tomorrow, Friday. The Fed Chairman's speech is likely to have a significant impact on central banks' interest rate expectations and will be the main catalyst for the USD. The strategists at OCBC have observed that “concerns over the reaction function of the Fed and fears that policymakers might be paying less attention to the need for curbing inflation” have brought greater focus on the upcoming speech of the Chair of the Fed, Warsh, at the Jackson Hole Conference. According to them, the USD can get “some support from Warsh and the Fed officials rejecting the worries about debasement and committing themselves to bring down the inflation rate to the Fed’s 2% target level.” The Jackson Hole Conference is considered an important platform for the Fed to make its stance clear on inflation and credibility. At the time of writing, the US Dollar Index maintains the gains made the previous day, trading near 9.15. The USD Index witnessed sharp gains on Wednesday with the release of the US Personal Consumption Expenditures (PCE) Price Index report for July. Strategists from UOB Group mention that the yields on US Treasuries strengthened following the release of “mixed signals” from the Fed’s favoured inflation measure for July. They point out that “headline PCE inflation printed slightly higher than consensus expectations of 3.6% y/y at 3.7%, while core PCE inflation was in line with expectations of 3.3% y/y.” According to the strategists, “the inflation figure boosted the US Dollar because the US Dollar strengthened versus the majority of G10 currencies as the inflation numbers kept alive the expectation that the Fed might still hike interest rates.” The focus on Tokyo will be on the BoJ’s September policy decision, when the central bank is widely expected to increase interest rates by 25 bps to 1.25%. Scotiabank strategists point out that although markets are beginning to price in a new policy direction, the “greater risk will come down to the tone set by the central bank” looking beyond the meeting on September 18, indicating that investors are more concerned about how the BoJ is going to package its message instead of the actual decision. According to the August 17-24 poll conducted by Reuters, 57% of economists believed that the BoJ would increase interest rates in September, compared with 5% who thought the same in a July poll.
TECHNICAL ANALYSIS The USD/JPY pair is trading at 159.34 on the daily chart, maintaining a somewhat bearish near-term base as it remains below the 20-day Exponential Moving Average at 159.47. The price is struggling to recover above this dynamic resistance, thus leaving sellers at aat an advantage. The proximity of the 20-day EMA makes the 159.47 area the key technical level where the next direction will be decided. As long as buyers fail to break this resistance, the entire recovery attempt remains vulnerable to another decline. The momentum analysis indicates a positive outlook for the pair. Indeed, the daily 14-period Relative Strength Index is hovering around 46.7 and stays below the 50 neutral level. At the same time, the indicator stopped declining, which means that bearish momentum is weakening. The RSI also remains well above the oversold levels; therefore, the lack of a technical sign of exhaustion in selling pressure is evident. The RSI recovering above 50 will signal a more favourable momentum outlook. At the same time, a decline below current levels will strengthen bearish momentum and heighten the risk of further declines. However, the main support remains the 20-day EMA at 159.47. Any close above this level will undermine the bearish structure and indicate that bulls are trying to regain control. The next stage after such a breakout will be an attempt to reach the recent highs, but there is still a need for more evidence of a sustained continuation of this movement. The pair's inability to breach the level in question, along with the appearance of a bearish rejection candle, will leave the market open to further losses. There is no visible near-term support level on the chart, and therefore previous swing lows are more important than ever. If the USD/JPY currency pair starts to decline, the previous swing lows will be watched for signs of buying interest. The fall below successive swing lows will confirm the bearish structure and the deepening of the correction. In general, USD/JPY continues to hold its cautious bearish position under the 159.47 level. According to the RSI indicator, there is some downside momentum, but no sign of bulls yet. A breakout above the 159.47 level would improve the outlook for USD/JPY, while any fresh sell-off below current levels may bring former swing lows into focus.
