FUNDAMENTAL OVERVIEW
USD:
The US dollar extended the gains across the board as markets are starting
to grow impatient amid the prolonged US-Iran stalemate and Strait of Hormuz
closure. Treasury yields came into the spotlight on Friday as they broke March
highs on increasing inflation worries and potentially hawkish Fed.
For context, the Fed is 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.
In the short-term, the reopening of the Strait could weigh on the greenback
as oil prices will likely fall quickly 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 require rate hikes anyway to bring
it sustainably back to the 2% target that the Fed has been missing since 2021.
There’s also another scenario where the Strait remains closed for longer
and oil prices stay elevated, with the risk of the Fed being forced to hike
anyway giving the dollar a boost and weighing on general risk sentiment.
JPY:
On the JPY side, nothing
has changed fundamentally. Japanese officials have been intervening in the FX market,
but yen sellers have been quick in fading the moves due to the persistently
negative macro backdrop.
The BoJ recently left
interest rates unchanged at 0.75% as widely expected but the highlight of the
decision weren’t the three dissenters voting for a rate hike, but Governor Ueda
adopting a less hawkish stance.
In fact, 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 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 broke above the key 158.00
resistance zone and extended the gains into the 159.00 handle. The natural
target should be the cycle high around the 162.00 level. If we get a pullback
into the resistance now turned support, 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
have an upward trendline defining the bullish momentum. The buyers will likely
continue to lean on the trendline to keep pushing into new highs, while the
sellers will want to see the price breaking lower to pile in for a drop into
the support targeting a break.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add as the buyers will have a better risk to reward setup around
the trendline or the support. For the sellers, it would be better to wait for a
break below the support as fundamental conditions remain firmly skewed to the
upside. Tomorrow, we have the FOMC meeting minutes. On Thursday, we
get the latest US Jobless Claims figures and the US Flash PMIs
