FUNDAMENTAL OVERVIEW
USD:
The US dollar has been gradually strengthening since Tuesday as the US-Iran stalemate led to some profit-taking on bearish dollar bets. There’s still no clear sign of a second round of talks after Iran refused to send a delegation to Islamabad on Tuesday due to the US blockade in the Strait of Hormuz.
The only good thing that is holding everything from puking hard is the ceasefire. Just today the Israel and Lebanon ceasefire got extended by another three weeks and the US-Iran ceasefire looks to be open-ended.
In the meantime, everyone has been replenishing their military stockpiles, with the US sending more ships and military forces to the Middle East. Traders will need to stay nimble because things can get ugly very quickly.
The price action continues to be driven by US-Iran headlines, and this is unlikely to change until we get an official resolution.
JPY:
On the JPY side, the currency has been mostly driven by US dollar strength and weakness as Japanese macro conditions continue to point towards a neutral policy. Today, we got the latest Japan’s CPI report, and the data didn’t change anything for the BoJ. Core inflation is still hovering below the 2% target and there’s no sign of an acceleration to justify urgent rate hikes.
The US-Iran war hasn’t only put upward pressure on inflation but also downward pressure on growth. The end of the war would certainly be good news for the economy and should lift business sentiment which might eventually translate into favourable conditions for a rate hike, but for now we haven’t got an official resolution.
The BoJ will want to wait for the end of the war and let things settle before considering a rate hike. If the war ends and economic data picks up, they might lay the groundwork for a rate hike in June, although it still looks too early.
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 above the downward trendline that was defining the bearish momentum into the support. The price action between the support and the trendline formed a descending triangle and this breakout might have opened the door for a move into the 162.00 handle. The buyers will likely lean on the minor upward trendline defining the current momentum to keep pushing into new highs, while the sellers will want to see the price falling back below the downward trendline to pile in for a drop back into the support.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will have a better risk to reward setup around the upward trendline, while the sellers will look for downside breaks to pile in and target the support zone. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the final University of Michigan Consumer Sentiment report but the focus will remain on US-Iran headlines.
