FUNDAMENTAL OVERVIEW
USD:
The US dollar has been on the backfoot since Monday as the positive US-Iran deal expectations kept weighing on the greenback. The second round of negotiations were expected to begin today but we never had an official date. They are expected to happen before the April 22 ceasefire deadline though.
In the meantime, we got reports that US and Iranian negotiators made progress in talks on Tuesday and they were moving closer to a framework agreement to end the war. A US official has also mentioned that if a framework agreement is reached, the ceasefire would need to be extended to negotiate the details of a comprehensive deal.
Everything now hinges on US-Iran talks. If negotiations were to break down again, we might see a short-term rally in the greenback, but as long as the ceasefire holds, the upside could remain limited. On the other hand, a peace deal might see the dollar extending the losses although a “sell the fact” type of reaction remains a risk.
The market is now pricing in 10 bps of easing by year-end and that might increase on a peace deal. I think the market might get disappointed further down the road as the boost to economic activity amid a resilient labour market and rate cut expectations will likely keep inflation above the 2% target and the Fed on the sidelines.
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, despite the growing expectations of a rate hike at the upcoming meeting, 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.
For now, the BoJ is more likely to hold rates steady and let things settle after the conclusion of the war. What the BoJ could do at the April meeting is to lay the groundwork for a rate hike in June if they think they have the right conditions in place and that could give the JPY a short-term boost.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY is still consolidating above the 158.00 support zone. The recent consolidation might have formed a head and shoulders pattern with the neckline around the support. If the price falls back to the support, 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 to pile in for a drop into the 155.00 level next.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the price rejected the downward trendline near the 160.00 handle and dropped into the 158.25 level today before bouncing. The sellers stepped in around the minor downward trendline with a defined risk above it to keep pushing into the 158.00 support. The buyers, on the other hand, will look for a break above the trendline to pile in for a rally into the next trendline.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a key swing level around 159.10. If we get a break above the trendline, the swing level is where we can expect the sellers to step back in to position for new lows, while the buyers will look for a break to increase the bullish bets into the next trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures but the focus remains on US-Iran headlines.
