FUNDAMENTAL OVERVIEW

USD:

The US dollar regained some ground yesterday following renewed tensions in
the Strait of Hormuz. In fact, The US and Iran exchanged fire in the most
serious test of their month-long ceasefire, with Iranian forces attacking three
US Navy destroyers in the Strait of Hormuz using missiles, drones and small
boats, and the US responding with strikes on Bandar Abbas and Qeshm Island.

The escalation was followed by quick de-escalation as a US official
described the strikes as not an act of war and said the ceasefire remained in
effect. Trump later told ABC the strikes were a “light blow” and a
“love tap” and confirmed ceasefire negotiations with Iran are
continuing.

Iran has not submitted a response to US war-ending proposal yet, so we will
likely continue to consolidate until Iran accepts the proposal and Strait of
Hormuz is reopened, or the ceasefire is clearly breached and the war restarts.

Looking ahead, the Fed is slowly abandoning the easing bias amid resilient
US data and elevated energy prices. The reopening of the Strait could weigh on
the greenback in the short-term as oil prices will likely crater and rate cut
bets will increase.

After that though, the focus will quickly turn back to the Fed and the
economic data. With the end of the war, the increase in economic activity could
keep inflation higher for longer and eventually even require rate hikes to
bring it sustainably back to the 2% target that the Fed has been missing since
2021.

JPY:

On the JPY side, nothing
has changed fundamentally. Japanese officials have been intervening in the FX market
since last week but dip-buyers in USD/JPY have been quick in fading the moves and selling
the yen. Unfortunately, interventions are useless given the negative macro
backdrop.

In fact, the BoJ left
interest rates unchanged at 0.75% as widely expected last week. The quarterly
outlook report showed a significant upward revision for inflation and a
downgrade for growth due to the US-Iran war. The highlight of the decision
though were the three dissenters who voted for a rate hike, which gave the
Japanese yen a short-term boost.

Most of the gains were
pared back as Governor Ueda struck a more measured tone in the press conference
as he noted that they want to take a little bit more time in gauging how the
Middle East situation would affect Japan’s economy and acknowledged that underlying
inflation is currently a bit below the 2% target.

He added that they expect
underlying inflation to be around 2% from second half 2026 but admitted that he
doesn’t know how many months it would take to gauge timing of their next rate
hike. This is going to keep weighing on the Japanese yen despite intervention
risks. All in all, the bias for the Japanese Yen remains bearish.

USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that USDJPY is consolidating between the
major trendline around the 155.00 handle and the key resistance zone around the
158.00 level. This rangebound price action could extend for weeks, so the
market participants will wait for a breakout on either side before picking a
direction.

USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we can
see the price has been slowly recovering into the key resistance zone. If the
price gets there, we can expect the sellers to step in with a defined risk
above the resistance to position for a drop back into the trendline targeting a
breakout. The buyers, on the other hand, will look for a break higher to
increase the bullish bets into the 162.00 level next.

USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, we
have a minor upward trendline and a minor support around the 156.50 level. We
can expect the buyers to step in around these levels with a defined risk below
the support to keep pushing into new highs. The sellers, on the other hand,
will need a break below the 156.50 support to open the door for a drop back
into the 155.00 handle. The red lines
define the average daily range for today.

UPCOMING CATALYSTS

Today we conclude the week with the US NFP report and University of
Michigan Consumer Sentiment survey.