KEY POINTS:
- Japanese Yen rebounds following more intense verbal intervention
- Japanese PM Takaichi confirms the intention of dissolving parliament and calling snap elections
- US Dollar remains supported amid potential focus on US-Iran tensions
- Fed members support current patient stance with rate cuts expected later in the year
FUNDAMENTAL OVERVIEW
USD:
The US Dollar continues to remain supported despite the recent soft US core inflation data as the market focus looks to be elsewhere. It’s interesting to note that the greenback strengthened after renewed Trump’s threats against Iran following the CPI report and could explain the strength given the risk-off flows we witnessed afterwards.
Yesterday, Trump said that the killing in Iran was stopping and that there were no plans for executions. The market reacted by selling the dollar, which might have been a confirmation that the focus has been indeed on Iran all this time. Unfortunately, we got mixed reports after Trump’s comment and eventually most of the moves were faded as the market erred on the cautious side.
In terms of monetary policy, traders continue to expect 54 bps of easing by year-end. Fed members continue to support the current patient and data-dependent stance. The outlook for the USD remains neutral to bearish for now
JPY:
On the JPY side, yesterday we got a barrage of verbal intervention from Japanese officials after the price broke above the 2025 high. That helped to pause the selloff in the yen as we got a pullback which eventually extended following the confirmation from PM Takaichi of an imminent dissolution of the parliament to call snap elections in February.
Unfortunately, this might not stop the depreciation in the Japanese Yen yet because the fundamentals remain unfavourable for the currency amid expansionary fiscal policy and the BoJ's slow monetary policy normalisation keeping real rates in the negative territory.
The central bank is still placing a great deal on wage growth, so wage data and spring wage negotiations remain key. The market is pricing around 40 bps of tightening by year end. The outlook for the JPY remains bearish.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY probed above the 2025 high around 158.87 but eventually fell back below the level following a barrage of verbal intervention from Japanese officials. We can expect the sellers to step in around these levels with a defined risk above the high to position for a drop into the 154.50 support. The buyers, on the other hand, will want to see the price breaking higher again to extend the rally into the 160.00 handle next.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we have an upward trendline defining the bullish momentum. If we get a pullback into the trendline, we can expect the buyers to lean on it with a defined risk below it to keep targeting new highs. The sellers, on the other hand, will look for a break lower to pile in for a drop into the 154.50 support next.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that the price broke below the minor upward trendline that was defining the bullish momentum on this timeframe. This might be a signal of a bigger pullback into the next major trendline. There’s a counter-trendline defining the current consolidation. The buyers will likely continue to lean on it to keep pushing into new highs, while the sellers will look for a break lower to increase the bearish bets into the major trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures.
