FUNDAMENTAL OVERVIEW
USD:
The US dollar strengthened across the board on safe haven demand this week after the US-Iran conflict erupted over the weekend. The main driver though was the market’s realisation that rate cuts might not come as soon as expected.
In fact, higher oil prices will eventually put upward pressure on inflation and the US data this week clearly showed that the economy has been re-accelerating since the start of the year and not slowing down further.
Traders pared back their rate cut bets this week with the total easing by year-end now seen around 41 bps vs 58 bps on Friday. Tomorrow, we have the US NFP report and all the jobs data we got up until now suggests that we will likely get good data.
JPY:
On the JPY side, nothing has changed as PM Takaichi’s opposition and, more importantly the data, haven’t been supporting a rate hike any time soon. The latest Japanese CPI fell below the BoJ’s 2% target, dealing another blow to the central bank’s efforts to further raise interest rates.
The market is still pricing a rate hike in June at the earliest with a total of two rate hikes by year-end. This might turn out to be too optimistic. The Japanese yen will continue to weaken as rate hike expectations get pushed further out.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY stalled at the key 157.65 level as the sellers stepped in to position for a drop back into the major trendline. The buyers will need a break above the swing level to extend the rally into the 159.00 handle next.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the price probed below the minor upward trendline but eventually bounced back above it. The buyers will likely continue to step in around the trendline with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the major trendline.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see the price broke above the minor downward trendline that was defining the pullback into the 4-hour trendline. The buyers piled in on the break to position for a rally into new highs. The sellers, on the other hand, will need to see the price breaking lower again to regain some control and target new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures. Tomorrow, we conclude the week with the US NFP report. Continue to keep an eye on the US-Iran war headlines as that’s what the market is focused on right now.
