• 135.90 could come into the picture in the coming days.
• 136.90 on the upside is important that guards closing highs of 137.14.

USD/JPY is firm in the open following the sharply higher US 10-year bond yield and firm close on Friday that put a bid into the greenback and helped to buoy the cross that is balancing a tightrope on the hourly chart as illustrated below:

USD/JPY H1 chart

The price is testing prior lows and hourly support. A break there opens the risk of a significant move to the downside for the week ahead. If bears commit, then 135.90 could come into the picture in the coming days in the build-up to the Jackson Hole. However, should the Fed sentiment brew in a hawkish manner, then a break of 136.90 will bring the prior closing highs of 137.14 into the picture again. 

• For the open, the Aussie will need to break above 0.6880 or the bulls will be under heat with prospects of a run below 0.6866.
• The RBA and Fed remain the key drivers of price.

AUD/USD was under pressure into the final days of last week with the labour market data providing a bit of something for everyone. However, the market's opinion about the policy path for the Reserve Bank of Australia keeps the prospects of an increase of 50bp in September to keep the cash rate above 3% by the end of 2022.

Meanwhile, the US dollar remains firm and up for the third straight day and four of the five days this week, ending Friday at 108.1030 and marking a high of 108.215. This was the highest since July 15 and it is on track to test the July 14 high near 109.294. 

The Fed debate continues 

There is plenty coming up in terms of the Federal Reserve and key data, starting with the Jackson Hole on August 25-27 where the central bank is expected to maintain its hawkish stance.  In terms of data, the August jobs report will be on September 2, inflation will be on September 13, followed by some early September Fed surveys scattered through that week before the Fed decision on September 21.  

The data points will be important in determining whether the Fed will hike by either 50 or 75 bp as the Fed said, it's data dependent but if the market gives the Fed 75 bp, it will take it without hesitation.  A the moment, the market is leaning towards 50 bp, so the Fed could make a very strong hawkish statement by delivering a surprise 75 bp and the Jackson Hole could be a game changer in that regard should Chair Powell reignite such sentiment. WIRP suggests a 50 bp hike is fully priced in for the September 20-21 FOMC meeting, with 55% odds of a 75 bp hike. 

Last week, a slew of Fed speakers kept the doves grounded and dollar bears in hibernation. 

The most hawkish of the chorus of Fed officials was CEO of the Federal Reserve Bank of St. Louis Jim Bullard who expressed a desire for a 75bp hike at September's meeting and added he isn’t ready to say the economy has seen the worst of the inflation surge.

“We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation” and “I don’t really see why you want to drag out interest rate increases into next year,” Bullard said in a Wall Street Journal interview.

As for the immediate risk,  the key loan prime rate (LPR) from the PBOC is due at 0115 GMT today with both one- and five-year interest rates to be set. Low fixesof late have helped push the greenbackhigher and has weighed on the Aussie. 

AUD/USD technical analysis

The daily chart above shows that the price is firmly penetrating the daily support that could lead to a significant move lower for the week ahead. The hourly structure for the open is as follows:

Below 0.6880, there are prospects of a run at 0.6866 to break the lows of 0.6859.