Fundamental Overview

USD: The US dollar weakened across the board yesterday after surprisingly dovish comments from Fed Governor Waller. Although Waller had taken a more hawkish stance at the beginning of the summer, he sounded less inclined to raise rates yesterday.

He said he has finally been seeing signs of disinflation and would not want to raise rates into a disinflationary environment, adding that he would be willing to wait another month to "give disinflation a chance." He also noted that the September rate decision will depend on the upcoming CPI report, and that if the data comes in hot, he would consider a rate hike.

Rate hike probabilities for the September meeting dropped significantly, with the market now pricing in just a 48% chance of a hike. Following Waller's comments, only a hot CPI report would likely be enough to push the Fed into hiking at the upcoming meeting.

Today brings the US NFP report, but given the Fed's focus on inflation, significant upside or downside deviations would likely be needed to provoke a meaningful market reaction. In the first case, the market could return to pre-Waller levels; in the second, yesterday's moves could be extended.

JPY: The yen reportedly strengthened on the back of hawkish repricing following comments from BoJ's Takata. That was probably not the culprit, however, given that Takata has been the most hawkish member and there has been minimal repricing in interest rate expectations.

Profit-taking ahead of the key resistance around the 160.50 level on USD/JPY, or stealth interventions, are more likely explanations. Indeed, some quick moves occurred without any catalyst. Suspicions of intervention are not unfounded: Japanese authorities have repeatedly warned against one-sided yen moves, and the Ministry of Finance has stepped into the currency market in the past when USD/JPY approached levels it deemed excessive, making unexplained sharp reversals a recurring feature of this pair.

BoJ Governor Ueda has also commented on monetary policy recently but offered nothing new; if anything, his comments were slightly less hawkish.

With a September rate hike already priced in, that outcome will not move the market. Traders will focus on forward guidance and any signals of a potentially faster pace of tightening. The USD/JPY uptrend is unlikely to change without a dovish repricing of Fed interest rate expectations or a faster BoJ tightening pace. That underlines the core dynamic of the pair in recent years: while the Fed holds policy restrictive, Japanese rates remain far below US levels, and the resulting wide rate differential has been a persistent headwind for the yen even as the BoJ gradually normalizes policy.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, USDJPY dropped all the way back to the key 155.00 support zone. The price bounced as dip-buyers stepped in with defined risk below the support, positioning for a rally back into the 160.50 resistance. Sellers, on the other hand, will want to see the price break lower to increase bearish bets toward the next support at 152.50.

USDJPY Technical Analysis – 4-Hour Timeframe

On the 4-hour chart, bearish momentum increased substantially after the break of the upward trendline, with the price eventually dropping back to the 155.00 support. There is little to glean from this timeframe, so a closer look is needed for more detail.

USDJPY Technical Analysis – 1-Hour Timeframe

On the 1-hour chart, a downward trendline defines the bearish momentum. Sellers are expected to lean on the trendline with defined risk above it, targeting a break below the support. Buyers, meanwhile, will want to see the price break higher to increase bullish bets toward the 160.50 resistance. The red lines define the average daily range for today.

Upcoming Catalysts

The week concludes today with the US NFP report, with the upcoming US CPI report also in focus given Waller's emphasis on inflation data for the September decision.