FUNDAMENTAL OVERVIEW
USD:
The US dollar pulled back across the board in the first part of the week on what looks like profit-taking from extreme levels rather than a change in fundamentals as we haven't got any meaningful catalyst to trigger a reversal yet.
The focus remains on the US-Iran war as a prolonged conflict could keep the greenback supported. Conversely, a de-escalation should trigger a relief rally in the markets and weigh on the US dollar.
Today, we also have the FOMC rate decision where the central bank is expected to keep interest rates unchanged at 3.50-3.75% and take a "wait and see" approach amid the US-Iran war. At this meeting, we will also get the Summary of Economic Projections (SEP) and the Dot Plot.
Inflation and unemployment will likely be revised upwards, while growth forecasts might be downgraded. The Dot Plot should still indicate just one rate cut in 2026.
JPY:
On the JPY side, nothing has changed as lack of progress on the inflation front and geopolitical risks will likely keep weighing on the currency as rate hike bets continue to be pushed further out.
Tomorrow, we have the BoJ rate decision where the central bank is expected to keep interest rates unchanged at 0.75%. BoJ Governor Ueda is unlikely to offer much in terms of forward guidance and just repeat the usual pledge to keep raising rates if the economic outlook is realised.
Traders will also focus on comments on the Japanese yen which recently fell to a two-year low against the US dollar. In 2024, the JPY weakness played a major role in one of their rate hike decisions, so the market will be attentive to signals whether that could happen again.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY pulled back a bit from the highs but maintains the bullish bias. There’s not much we can glean from this timeframe, so we need to zoom in to see some more details.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the price broke below the upward trendline that was defining the bullish momentum on this timeframe. We have a minor downward trendline defining the recent pullback. The sellers will likely lean on the downward trendline with a defined risk above it and position for a drop into the 157.00 handle. The buyers, on the other hand, will look for a break higher to pile in for a rally into the 160.00 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 look for a rejection around the downward trendline, while the buyers will look for a breakout. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the US PPI report and the FOMC policy decision. Tomorrow, we have the BoJ policy decision and the latest US Jobless Claims figures. The focus remains on the US-Iran war, so keep an eye on the headlines, especially those regarding the Strait of Hormuz.
