It was expected to be announced in a few
hours, yet here we are with still nothing concrete from either side and with
reports of both parties still engaged in negotiations.
What is more important now is the US data showing resilience and the Fed slowly
abandoning the easing bias with more and more policymakers talking about the
need of keeping all options on the table, and some explicitly bringing up rate
hike possibilities. These are generally subtle moves before a
pivot in monetary policy. If nothing changes before the June meeting, we might
be in for a hawkish surprise.
In the short-term, a resolution and the reopening of the Strait will likely
weigh on the greenback on falling oil prices and increased rate cut bets. But
if the Strait remains closed for longer and oil prices stay elevated, the risk
of the Fed being forced to hike anyway increases.
Today, the focus will be on Fed’s Waller speech on Economic Outlook. The
economic outlook speeches generally contain policy signals. Fed’s Waller has
been a great “leading indicator” for Fed policy in this cycle, and I
think the market would react in a big way if he were to change his dovish
stance now.
He’s been worrying about the labour market, but the data has been pointing
to resilient conditions. What is more in tension now is inflation and if he
switches his focus back to that, it might be taken as a signal for potential
rate hikes.
JPY:
On the JPY side, nothing
has changed fundamentally but it seems like the Japanese officials have finally
stopped intervening in the FX market. The macro backdrop for the yen remains
negative. This wasn’t a surprise
though as the Tokyo CPI, which generally leads the National CPI, showed further
cooling in inflation and BoJ Governor Ueda did mention in the last press conference
that underlying inflation is currently a bit below the 2% target.
As a reminder, the BoJ left
interest rates unchanged at 0.75% as widely expected at the last meeting but
the highlight of the decision weren’t the three dissenters voting for a rate
hike, but Governor Ueda adopting a less hawkish stance.
He mentioned that they
expect underlying inflation to be around 2% from second half of 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 the interventions. 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 around the
159.00 handle. The natural target should be the cycle high around the 162.00
level. If we get a pullback into the 158.00 support zone, we can expect the
buyers to step in with a defined risk below the support to keep pushing into
new highs. The sellers, on the other hand, will look for a break lower to pile
in for a drop into the major upward trendline.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the consolidation around the 159.00 handle. The buyers will look
for long opportunities around the 158.60 support or on the break above the
159.30 resistance. The sellers, on the other hand, will need to see the price
breaking below the 158.60 support to open the door for a bigger pullback into
the 158.00 level next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the price might just keep ranging until we get a
breakout on either side
