FUNDAMENTAL OVERVIEW
USD:
The US dollar has been
gradually strengthening since Tuesday as the US-Iran stalemate led to some profit-taking
on bearish dollar bets. There’s still no clear sign of a second round of talks
after Iran refused to send a delegation to Islamabad on Tuesday due to the US
blockade in the Strait of Hormuz.
The only good thing that is
holding everything from puking hard is the ceasefire. Just today the Israel and
Lebanon ceasefire got extended by another three weeks and the US-Iran ceasefire
looks to be open-ended.
In the meantime, everyone
has been replenishing their military stockpiles, with the US sending more ships
and military forces to the Middle East. Traders will need to stay nimble
because things can get ugly very quickly.
The price action continues
to be driven by US-Iran headlines, and this is unlikely to change until we get
an official resolution.
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. Today, we got the latest
Japan’s CPI report, and the data didn’t change anything for the BoJ. Core inflation
is still hovering below the 2% target and there’s no sign of an acceleration to
justify urgent rate hikes.
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, although it still looks too early.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY continues to consolidate
between the 158.00 support and the 160.00 handle. If we get another pullback from
the recent highs, we can expect the buyers to step in again around the support with
a defined risk below it to position for a rally into the 162.00 handle. The
sellers, on the other hand, will want to see the price breaking lower to open
the door for a drop into the major upward trendline around the 155.00 level.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price broke above the downward trendline that was defining the bearish
momentum into the support. The price action between the support and the
trendline formed a descending triangle and this breakout might have opened the
door for a move into the 162.00 handle. The buyers will likely lean on the
minor upward trendline defining the current momentum to keep pushing into new
highs, while the sellers will want to see the price falling back below the
downward trendline to pile in for a drop back into the support.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the buyers will have a better risk to reward setup around
the upward trendline, while the sellers will look for downside breaks to pile
in and target the support zone
