FUNDAMENTAL OVERVIEW
USD:
The US dollar extended the losses on Friday following a barrage of positive news on the US-Iran front that seemed to point to an imminent deal after Iran announced the reopening of the Strait of Hormuz.
The greenback eventually erased the losses heading into the weekend after Trump said that the US would keep the blockade of the Strait of Hormuz in place until a deal with Iran was finalized. Traders might have hedged into the weekend due the risk of an escalation. This is exactly what happened as Iran reclosed the Strait in retaliation to the US blockade.
The good news is that the ceasefire is still holding and we are still getting reports of talks and preference for a diplomatic resolution which is keeping the markets afloat. The bad news is that the ceasefire expires tomorrow unless we get another extension which is what the market expects given Trump’s track record.
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. In fact, inflation in Japan has been gradually easing with most metrics being near or below the 2% target.
Moreover, 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 is more likely to hold rates steady in April with the market now pricing in just a 17% probability of a hike. The central bank 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.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY eventually dropped into the 158.00 support and rebounded as the buyers stepped in with a defined risk below the support to position for a rally into the 162.00 level. The sellers will need the price to break below the support to open the door for a move into the major trendline around the 155.00 level.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have a downward trendline acting as resistance. If the price gets there, we can expect the sellers to lean on the trendline with a defined risk above it to position for a drop back into the support. The buyers, on the other hand, will look for a break to increase the bullish bets into the 162.00 handle.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as from a risk management perspective, the sellers will have a better risk to reward setup around the trendline, while the buyers will either continue to step in around the support or wait for a break above the trendline to increase the bullish bets. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the US Retail Sales. On Thursday, we get the latest US Jobless Claims figures and the US PMIs. On Friday, we conclude the week with the Japanese CPI report. The focus remains on US-Iran headlines ahead of the ceasefire deadline tomorrow.
