FUNDAMENTAL OVERVIEW
USD:
The US dollar sold off across the board today after Trump announced on Truth Social a two-sided ceasefire agreement for two weeks while the US and Iran negotiate a lasting peace deal. The discussions will begin on Friday in Islamabad and may be extended if both parties agree.
Given the de-escalation, the risk sentiment in the markets turned around quickly and risk assets got heavily bid. As you would expect, traders went back to price in rate cuts for the Fed with now 14 bps of easing expected by year-end compared to basically zero before the ceasefire announcement.
There’s still a risk that the war could restart any time as the US and Iran haven’t officially ended the hostilities. Nonetheless, the bias has now turned bearish for the dollar as traders look forward to a lasting peace deal.
JPY:
On the JPY side, the currency strengthened just because of dollar weakness as the Japanese macro conditions haven’t really changed that much. The drop in oil prices and the expected resumption of traffic in the Strait of Hormuz might ease growth concerns since Japan is heavily reliant on imported energy. This should support the stock market and lift business sentiment.
Looking ahead, the market is pricing in a 50% chance of a BoJ hike in April. The central bank is more likely to hold interest rates steady and let things settle after the conclusion of the US-Iran war (that’s if it really ends in the next two weeks). The BoJ could signal a rate hike in June though if they think they have the right conditions in place.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY is approaching the key 157.65 support. That’s where we can expect the buyers to step in with a defined risk below the support to position for a rally into the 162.00 handle. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the major trendline around the 155.00 level.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, there’s not much we can add here given the strong move to the downside. At the moment, the natural target for the sellers is the support around the 157.65 level. That’s where we either get a bounce or a break.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that the price is trading way below the lower bound of the average daily range for today. In such instances, we can generally see some consolidation or a pullback before the next move, although given the strength of today’s catalyst, we might see the price fall further into the support before a pullback.
UPCOMING CATALYSTS
Today we have the FOMC meeting minutes. Tomorrow, we get the US PCE price index and the latest US Jobless Claims figures. On Friday, we conclude the week with the US CPI report and the University of Michigan Consumer Sentiment survey. As a reminder, we have also the US-Iran negotiations in Islamabad on Friday.
