FUNDAMENTAL OVERVIEW
USD:
The US dollar extended the
losses on Friday following a barrage of positive news on the US-Iran front that
seemed to point to an imminent deal after Iran announced the reopening of the
Strait of Hormuz.
The greenback eventually
erased the losses heading into the weekend after Trump said that the US would
keep the blockade of the Strait of Hormuz in place until a deal with Iran was
finalized. Traders might have hedged into the weekend due the risk of an
escalation. This is exactly what happened as Iran reclosed the Strait in
retaliation to the US blockade.
The good news is that the
ceasefire is still holding and we are still getting reports of talks and
preference for a diplomatic resolution which is keeping the markets afloat. The
bad news is that the ceasefire expires tomorrow unless we get another extension
which is what the market expects given Trump’s track record.
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. In fact, 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 is more likely to hold
rates steady in April with the market now pricing in just a 17% probability of
a hike. The central bank 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
On the daily chart, we can
see that USDJPY eventually dropped into the
158.00 support and rebounded as the buyers stepped in with a defined risk below
the support to position for a rally into the 162.00 level. The sellers will
need the price to break below the support to open the door for a move into the
major trendline around the 155.00 level.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have
a downward trendline acting as resistance. If the price gets there, we can
expect the sellers to lean on the trendline with a defined risk above it to
position for a drop back into the support. The buyers, on the other hand, will
look for a break to increase the bullish bets into the 162.00 handle.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as from a risk management perspective, the sellers
will have a better risk to reward setup around the trendline, while the buyers
will either continue to step in around the support or wait for a break above the
trendline to increase the bullish bets. On Thursday, we get the latest US Jobless
Claims figures and the US PMIs. On Friday, we conclude the week with the Japanese
CPI report
