FUNDAMENTAL OVERVIEW
USD:
The US dollar has been on
the backfoot since Monday as the positive US-Iran deal expectations kept
weighing on the greenback. The second round of negotiations were expected to
begin today but we never had an official date. They are expected to happen
before the April 22 ceasefire deadline though.
In the meantime, we got reports
that US and Iranian negotiators made progress in talks on Tuesday and
they were moving closer to a framework agreement to end the war. A US official
has also mentioned that if a framework agreement is reached, the ceasefire
would need to be extended to negotiate the details of a comprehensive deal.
Everything now hinges on
US-Iran talks. If negotiations were to break down again, we might see a
short-term rally in the greenback, but as long as the ceasefire holds, the
upside could remain limited. On the other hand, a peace deal might see the
dollar extending the losses although a “sell the fact” type of reaction remains
a risk.
The market is now pricing
in 10 bps of easing by year-end and that might increase on a peace deal. I
think the market might get disappointed further down the road as the boost to
economic activity amid a resilient labour market and rate cut expectations will
likely keep inflation above the 2% target and the Fed on the sidelines.
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, despite
the growing expectations of a rate hike at the upcoming meeting, 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.
For now, the BoJ is more
likely to hold rates steady and let things settle after the conclusion of the
war. What the BoJ could do at the April meeting is to lay the groundwork for a
rate hike in June if they think they have the right conditions in place and that
could give the JPY a short-term boost.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY is still consolidating above
the 158.00 support zone. The recent consolidation might have formed a head and
shoulders pattern with the neckline around the support. If the price falls back
to the support, we can expect the buyers to step in with a defined risk below
the support to position for a rally into the 162.00 handle. The sellers, on the
other hand, will look for a break to pile in for a drop into the 155.00 level
next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price rejected the downward trendline near the 160.00 handle and dropped
into the 158.25 level today before bouncing. The sellers stepped in around the minor
downward trendline with a defined risk above it to keep pushing into the 158.00
support. The buyers, on the other hand, will look for a break above the
trendline to pile in for a rally into the next trendline.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have
a key swing level around 159.10. If we get a break above the trendline, the
swing level is where we can expect the sellers to step back in to position for
new lows, while the buyers will look for a break to increase the bullish bets
into the next trendline
