USD/JPY is on the rise, while AUD/USD tests resistance once more.

 USD/JPY rose for the fourth consecutive day, showing potential to reach 149. However, with U.S. traders returning from a long weekend and a busy week of U.S. economic data ahead, some volatility may be expected.

On Monday, Australia's economic data showed a downward trend, with manufacturing PMI, job advertisements, and company profits all falling short of expectations. The manufacturing PMI dropped to 48.5, marking the 18th consecutive month of contraction, though this was the slowest contraction in three months. New orders decreased, and vendor performance declined at the fastest rate in two years. Job advertisements fell by 2.1% in August, marking the seventh straight month of decline. Additionally, company profits shrank by 5.3% quarter-over-quarter, the sharpest drop in four quarters, just before a key GDP report on Wednesday. These figures may pose challenges for the RBA in raising rates, even though they are likely to maintain a hawkish stance going forward.

In China, a weak manufacturing PMI dampened stock markets on Monday. Official data from the National Bureau of Statistics revealed a decrease in manufacturing PMI to 49.1 from 49.4, marking the fastest contraction since February. The Hang Seng Index fell by 1.7% and formed a bearish engulfing pattern, casting doubt on its recent 4-week rally.

Within the Eurozone, ECB members are divided on the growth outlook. While another rate cut in September seems likely, there is disagreement on whether the economy might face a recession or if inflationary pressures will continue, making future rate cut forecasts uncertain.

Technical Analysis of USD/JPY:

Last week, I mentioned several times that the US dollar seemed poised for a bullish mean reversion. Indeed, the US dollar index climbed over the last three days of the week, aided by month-end flows, and a weaker yen allowed USD/JPY to rise for a fourth consecutive day on Monday.

USD/JPY has now exceeded my initial target of 146, and we might be looking at a move towards the base of the falling wedge around 149. However, the daily RSI (2) is currently overbought, and with EUR/USD showing a bullish inside day and the US dollar index rally losing momentum, a minor pullback might be necessary before USD/JPY continues its ascent. Additionally, with US data being released tonight, any signs of weakness could reignite speculation of a dovish Fed stance.

On the 1-hour chart, the trend remains strong, but there are also bearish divergences present. Resistance was encountered at the weekly R1 pivot point. The 1-hour trend remains bullish as long as it stays above the 145.76 low, with the monthly pivot point at 146.25. Therefore, I am looking for dips towards these levels as potential entry points for the next swing trade long.

Technical Analysis of AUD/USD:

 


This is just a brief update to my weekly AUD/USD outlook. On Monday, a minor bullish inside day formed, closing just below the July high and the 68c level. We haven’t seen a daily close above these points yet, though there have been three daily wicks suggesting false breakouts.

The current bias suggests a potential move lower before the pair might reach 69c. However, the 1-hour chart is showing an uptrend, so there might be another short-term upward movement before the anticipated decline. Bulls might target dips to the weekly pivot point around 0.6870 for a possible rebound to the July high or the weekly R1 (0.6808). Conversely, bears could look to fade into these levels or wait for the RSI (2) to become overbought before considering short positions.


Events in Focus (AEDT):

Volatility is likely to increase overnight as US traders return to their desks following the Labour Day weekend. The ISM manufacturing data will be the first significant US release of the week. While the services report on Thursday holds more weight, any surprises in the manufacturing data could influence expectations for upcoming employment figures before Friday’s NFP release. Additionally, it will provide insight into underlying inflationary and growth trends.

In Australia, net exports might prompt banks to revise their GDP forecasts if the data deviates significantly from expectations. Traders anticipating a dovish stance from the RBA will be looking for a notably negative print to support their lower growth projections for the week.

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