FUNDAMENTAL OVERVIEW
USD:
The US dollar opened higher today after Israel bombed 30 Iranian fuel depots on Saturday and oil prices surged above 100$ per barrel. The greenback continues to be supported on safe haven demand and the hawkish repricing in interest rate expectations as traders pare back the Fed rate cut bets.
The weak NFP report on Friday was basically ignored as the market focus remains on the US-Iran war. The NFP was also completely the opposite of what the other jobs data have been pointing to, so it’s hard to trust it.
Traders are now laser focused on de-escalation as that would trigger a strong relief rally in risk assets which is likely to weigh on the US Dollar. Trump said on Truth Social that oil prices will drop rapidly when the destruction of the Iran nuclear threat is over.
Reading between the lines it means that once they declare that the nuclear threat is over or that they reached all their goals, it would mark the start of de-escalation and the market will react to it.
JPY:
On the JPY side, nothing has changed as PM Takaichi’s opposition and, more importantly the data, haven’t been supporting a 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 a rate hike in June at the earliest with a total of two rate hikes by year-end. This 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 finally reached the “intervention” level near the 159.00 handle. This is where we got the strong verbal intervention in January followed by rate checks that triggered a strong rally in the Japanese Yen and a selloff in the US Dollar. Traders will now be extra cautious, but the path of least resistance remains to the upside.
The sellers will likely step in around these levels with a defined risk above the January highs to position for a drop back into the major upward trendline. The buyers, on the other hand, will look for a break to increase the bullish bets into new highs.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we have a strong support zone around the 157.65 level where we can also find the confluence of the minor upward trendline. If we get a pullback into the support, we can expect the buyers to step in with a defined risk below the trendline to keep pushing into new highs. The sellers, on the other hand, will look for a break to increase the bearish bets into the major upward trendline next.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor upward trendline defining the bullish momentum on this timeframe. The buyers will likely lean on the trendline with a defined risk below it to keep pushing into new highs, while the sellers will look for a break to extend the pullback into the next trendline targeting a breakout. The red lines define the average daily range for today.
UPCOMING CATALYSTS
On Wednesday we have the US CPI report. On Thursday, 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.
