FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board on Monday after Trump told CBS that “the war could be over soon.” Traders unwound some of their positions as expectations of a quick resolution led to a repricing of hawkish interest-rate bets, putting pressure on the greenback.
The dollar extended those losses yesterday as improved risk sentiment added further downside pressure. However, the trend reversed in the evening following reports that US intelligence assets had detected signs Iran may be preparing to deploy mines in the Strait of Hormuz shipping lane. As the prospects of a quick resolution faded, US dollar bids returned.
Today, we have the US CPI report on the agenda. Given the market’s focus on the war, investors will likely shrug off a softer-than-expected reading, as the data may already be viewed as outdated. However, a hotter-than-expected report could trigger some risk aversion. Investors may worry that if inflation was already picking up before the war began, higher oil prices could push it even higher in the months ahead.
JPY:
On the JPY side, nothing has changed as PM Takaichi’s opposition and, more importantly the data, haven’t been supporting a BoJ rate hike any time soon. The latest Japanese CPI fell below the BoJ’s 2% target, dealing another blow to the central bank’s efforts to further raise interest rates.
The selloff in the Nikkei due to the US-Iran war and the general risk aversion is not helping either as it could weigh on economic activity the longer it drags on.
The market is still pricing roughly two rate hikes by year-end which might turn out to be too optimistic. The Japanese yen will continue to weaken as rate hike expectations get pushed further out.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY pulled back a bit from the “intervention” level on some profit-taking. The bullish bias remains intact for now. The buyers will want to see the price breaking higher to increase the bullish bets into new highs, while the sellers will continue to step in around the highs to position for a drop back into the major upward trendline.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the price bounced from the 157.65 support where we had also the confluence of the minor upward trendline. The buyers will likely continue to lean on the trendline to keep pushing into new highs, while the sellers will look for a break to pile in for a drop into the major upward trendline next.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see the buyers piled in on the break of the minor downward trendline that was defining the pullback. We got a little pullback into the 157.90 support before another impulse to the upside. If the price pulls back again, we can expect the buyers to step in around the 157.90 support and the trendline to keep pushing into new highs, while the sellers will need a break below the 157.27 level to turn the bullish structure into a bearish one, and open the door for new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PCE price index, the University of Michigan Consumer Sentiment survey and the Job Openings data. As a reminder, the market focus right now is solely on the US-Iran war, so the data might not matter much.
