FUNDAMENTAL OVERVIEW
USD:
The US dollar has come under renewed pressure yesterday despite the lack of progress in the US-Iran negotiations and the Strait of Hormuz closure. What has been weighing on the greenback to start the week was the news saying that Iran proposed to reopen the Strait of Hormuz if the US blockade is lifted and then hold nuclear talks later.
This constant push for a diplomatic resolution instead of another full-fledged war has been supporting the risk sentiment on expectations that a deal would be reached eventually. Nonetheless, the stalemate is causing oil prices to rise, and we are now basically back around triple digit levels.
Reports are also saying that Trump is unlikely to accept Iran’s proposal, which might keep the risk sentiment in check and support the US dollar in the short-term. Overall, we are now in a consolidation phase until the next major catalyst.
Tomorrow, we have the FOMC policy decision and although the Fed is expected to keep everything unchanged amid the US-Iran uncertainty, there’s a risk of a more hawkish leaning due to resilient US data and a longer than expected US-Iran war.
A neutral Fed shouldn’t bring much volatility, but a more hawkish one could give the US dollar a boost given the recent selloff.
JPY:
On the JPY side, the BoJ today left interest rates unchanged at 0.75% as widely expected. The quarterly outlook report showed a significant upward revision for inflation and a downgrade for growth due to the US-Iran war. The highlight of the decision though were the three dissenters who voted for a rate hike, which gave the Japanese yen a short-term boost.
Most of the gains were pared back as Governor Ueda struck a more measured tone as he noted that they want to take a little bit more time in gauging how the Middle East situation would affect Japan’s economy and acknowledged that underlying inflation is currently a bit below the 2% target.
He added that they expect underlying inflation to be around 2% from second half 2026 but admitted that he doesn’t know how many months it would take to gauge timing of their next rate hike. All in all, the bias for the Japanese Yen remains neutral to bearish.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY continues to consolidate between the 158.00 support and the 160.00 handle. If we get another pullback from the recent highs, we can expect the buyers to step in again around the support with a defined risk below it to position for a rally into the 162.00 handle. The sellers, on the other hand, will want to see the price breaking lower to open the door for a drop into the major upward trendline around the 155.00 level.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the price broke the downward trendline and started to consolidate just above it. We now have another minor downward trendline defining the consolidation. The sellers will likely continue to lean on it with a defined risk above it to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into the 162.00 handle next.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the sellers will either look for a rejection around the minor downward trendline or a break below today’s low, while the buyers will wait for a break above the trendline to increase the bullish bets into new highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the US Consumer Confidence report. Tomorrow, we have the FOMC policy decision. On Thursday, we get the US Q1 GDP, the US Employment Cost Index and the latest US Jobless Claims figures. On Friday, we conclude the week with the US ISM Manufacturing PMI.
