FUNDAMENTAL OVERVIEW
USD:
The US dollar strengthened a
bit yesterday as traders turned more cautious heading into the expected US-Iran
talks in Islamabad and the ceasefire deadline. The markets got scared at some point
as it looked like the Islamabad talks were dead on arrival with Iran refusing
to participate until the US blockade in the Strait of Hormuz was lifted.
The sentiment improved
though after Trump extended the ceasefire deadline (unsurprisingly) to allow
more time for Tehran to put forward a proposal to end the war. There’s no
deadline for this latest extension, so we might just get stuck in this new
situation until the bombs start dropping again or they finally reach a deal.
This morning, the sentiment
is a bit more positive after Tasnim
reported that
Iran received ‘some sign’ the US is ready to break the blockade which is giving
traders hope that the talks are going to happen soon.
The price action continues
to be driven by US-Iran headlines, and this is unlikely to change until we get
an official resolution. For now, the greenback will likely remain under
pressure amid the optimistic expectations.
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. Yesterday, we got
several reports
suggesting the BoJ is going to keep interest rates unchanged at the
upcoming meeting. This shouldn’t be a surprise at all given that 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, but for now we haven’t got an official resolution.
The BoJ will want to wait
for the end of the war and let things settle before considering a rate hike. If
the war ends and economic data picks up, they might lay the groundwork for a
rate hike in June.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
USDJPY – daily
On the daily chart, we can
see that USDJPY continues to consolidate
between the 158.00 support and the 160.00 handle. If the price pulls back into
the support again, we can expect the buyers to step in with a defined risk below
it to keep targeting the 162.00 level next. The sellers, on the other hand,
will look for a break lower to open the door for a move into the major upward trendline
around the 155.00 handle.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDJPY – 4 hour
On the 4 hour chart, we
have a downward trendline acting as resistance. The price probed above the
trendline yesterday on some negative headlines but eventually fell back below
it as Trump extended the ceasefire. The sellers are likely to pile in around
these levels with a defined risk above the trendline to target the 158.00
support zone. The buyers, on the other hand, will want the price to break
higher again to position for a rally into the 162.00 level next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDJPY – 1 hour
On the 1 hour chart, we have
a minor upward trendline defining the pullback into the downward trendline. 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
158.00 support. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we get the latest US Jobless Claims figures and the US PMIs. On
Friday, we conclude the week with the Japanese CPI report. The focus remains on
US-Iran headlines.
