FUNDAMENTAL OVERVIEW
USD:
The US dollar opened the week higher yesterday following the breakdown of US-Iran negotiations over the weekend. The gains didn’t extend further though as the ceasefire remained intact and we got reports of US and Iran continuing to exchange messages through diplomatic backchannels.
There were still risks of another escalation after Trump decided to put pressure on Iran by blockading their ports, but everything turned around in the first part of the US session as we started to get positive headlines and the greenback sold off across the board.
In fact, we got the first boost to risk sentiment after the New York Post reported that Iranian officials were studying abandoning uranium enrichment as a US condition for ending the war. The moves then extended as we got further reports confirming the ongoing negotiations between US and Iran and finally a second round of talks was set for this weekend.
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.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY bounced around the 158.00 handle and almost reached the 160.00 level before retracing. The recent consolidation might have formed a head and shoulders pattern with the neckline around the 158.00 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 eventually broke below the upward trendline that was defining the pullback. The sellers stepped in around the downward trendline and increase the bearish bets on the break of the upward trendline targeting the 158.00 support. If we get another pullback into the downward trendline, we can expect the sellers to lean on it to keep pushing into new lows, while the buyers will look for a break to pile in for a rally into the 162.00 handle.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we don’t have clear levels where to lean on other than the resistance around the 159.40 level. If the price gets there, we can expect the sellers to step in with a defined risk above the trendline in case the pullback extends and target the 158.00 support. The buyers, on the other hand, will look for upside breaks to pile in for a rally into new highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the US PPI report. On Thursday, we get the latest US Jobless Claims figures. The focus remains on US-Iran headlines.
