FUNDAMENTAL OVERVIEW
USD:
The US dollar strengthened across the board heading into the weekend as traders hedged on risks of a potential ground invasion. This morning, we are seeing some weakness as those hedges get unwound.
The focus remains solely on the US-Iran negotiations and there’s some cautious optimism as Pakistan confirmed that negotiations may take place in Islamabad in the coming days and Trump said that they are performing extremely well and they could make a deal pretty soon, although he added that they might fail as well.
The path of least resistance for the dollar remains to the upside. Traders will keep a watchful eye on the headlines and especially on Trump’s Truth Social account, as we are always one post away from huge market moves.
Traders are not pricing in any change to interest rates this year as we have just 5 bps of tightening expected by year-end.
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. The latest Japanese CPI report showed further easing in inflation with the Core figure falling well below the BoJ’s 2% target.
The BoJ last week has announced that it will begin publishing data on the estimated core consumer price inflation rate but even their estimates are not really calling for immediate action.
On the wage growth side, the initial outcome of the spring wage negotiations points to a third straight fiscal year in which Japan sees average wage hikes of above 5%. This should keep the tightening bias intact, but the central bank might want to wait for the US-Iran war to end to avoid exacerbating growth fears.
We got some verbal intervention in the APAC session which gave the yen some reprieve. Traders are pricing in a 61% chance of a rate hike at the upcoming meeting with a total of 50 bps of tightening by year-end.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY probed above the 160.00 handle but couldn’t sustain a breakout as the price pulled back. From a risk management perspective, the buyers will have a better risk to reward setup around the 157.65 support to position for a rally into the 161.95 level. The sellers, on the other hand, will want to see the price breaking below the support to open the door for a bigger correction into the 154.00 handle.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have a minor upward trendline defining the bullish momentum and the confluence with the broken resistance around the 159.60 level. We can expect the buyers to step in here with a defined risk below the trendline to keep pushing into new highs. The sellers, on the other hand, will look for a break to pile in for a drop into the 157.65 support.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will look for a bounce around these levels, while the sellers will target a break. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have Fed Chair Powell speaking. Tomorrow, we get the Tokyo CPI, the US Consumer Confidence and US Job Openings data. On Wednesday, we have the US ADP, the US Retail Sales and the US ISM Manufacturing PMI. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report.
