FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board again today following several
positive news on the US-Iran front. Late yesterday, the US Secretary of State
Marco Rubio declared Operation Epic Fury concluded and its objectives achieved.
That was followed by Trump
tonight pausing Project Freedom so that the US could work to finalise a
deal with Iran. The pause was of course interpreted as another step towards a
deal.
Lastly, just a few minutes earlier, we got an Axios
report saying that US and Iran are getting close to a one-page memo to end
the war and that US officials are said to be expecting Iran’s response to
several key points in the next 48 hours.
Looking ahead, the Fed is slowly abandoning the easing bias amid resilient
US data and elevated energy prices. The reopening of the Strait could weigh on
the greenback in the short-term as oil prices will likely crater 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 even require rate hikes to
bring it sustainably back to the 2% target that the Fed has been missing since
2021.
JPY:
On the JPY side, nothing
has changed fundamentally. Japanese officials have been intervening in the FX market
since last week but after the first big selloff on Thursday, dip-buyers have
been quick in fading the moves and selling the yen. Unfortunately, interventions
are useless given the negative macro backdrop.
In fact, the BoJ left
interest rates unchanged at 0.75% as widely expected last week. The quarterly
outlook report showed a significant upward revision for inflation and a
downgrade for growth due to the US-Iran war. The highlight of the decision
though were the three dissenters who voted for a rate hike, which gave the
Japanese yen a short-term boost.
Most of the gains were
pared back as Governor Ueda struck a more measured tone in the press conference
as 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 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 intervention
talk. All in all, the bias for the Japanese Yen remains bearish.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
USDJPY – daily
On the daily chart, we can
see that USDJPY dropped below the key support
zone around the 158.00 handle following Japan’s intervention and pulled back to
retest the support now turned resistance. We got another intervention today
that pushed the pair into the key 155.00 handle near the major upward trendline.
That’s where the dip-buyers
stepped in with a defined risk below the trendline to position for a rally into
the 162.00 level next. The sellers will need the price to break below the
trendline to open the door for new lows.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDJPY – 4 hour
On the 4 hour chart, we can
see more clearly the two major interventions that pushed the pair all the way down
to the 155.00 level. There were other minor interventions in between that kept
the pair in a tight range for a couple of days. The key levels remain the major
trendline and the resistance zone around the 158.00 handle.
If the price pulls back
into the resistance again, we can expect the sellers to step in with a defined
risk above it to position for a drop into the trendline targeting a breakout.
The buyers, on the other hand, will want to see the price breaking above the
resistance to increase the bullish bets into the 162.00 level next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDJPY – 1 hour
On the 1 hour chart, we
have a minor resistance around the 156.50 level. If the price gets there, we
can expect the sellers to step in with a defined risk above the level to keep
pushing into new lows, while the buyers will look for a break to extend the pullback
into the key resistance zone targeting a breakout. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the US ADP report. Tomorrow, we get the latest US Jobless
Claims figures. On Friday, we conclude the week with the Japanese wage data,
the US NFP report and University of Michigan Consumer Sentiment survey.
