FUNDAMENTAL OVERVIEW
USD:
The US dollar strengthened across
the board heading into the weekend as traders hedged on risks of a potential
ground invasion. This morning, we are seeing some weakness as those hedges get
unwound.
The focus remains solely on
the US-Iran negotiations and there’s some cautious optimism as Pakistan
confirmed that negotiations may take place in Islamabad in the coming days
and Trump
said that they are performing extremely well and they could make a deal
pretty soon, although he added that they might fail as well.
The path of least
resistance for the dollar remains to the upside. Traders will keep a watchful
eye on the headlines and especially on Trump’s Truth Social account, as we are
always one post away from huge market moves.
Traders are not pricing in any
change to interest rates this year as we have just 5 bps of tightening expected
by year-end.
JPY:
On the JPY side, nothing
has changed as lack of progress on the inflation front and geopolitical risks
will likely keep weighing on the currency. The latest Japanese CPI report showed further easing in
inflation with the Core figure falling well below the BoJ’s 2% target.
The BoJ last week has announced
that it will begin publishing data on the estimated core consumer price
inflation rate
but even their estimates are not really calling for immediate action.
On the wage growth side, the
initial outcome of the spring wage negotiations
points to a third straight fiscal year in which Japan sees average wage hikes
of above 5%. This should keep the tightening bias intact, but the central bank
might want to wait for the US-Iran war to end to avoid exacerbating growth
fears.
We got some verbal intervention in the APAC session which gave the yen some reprieve. Traders are pricing in a 61%
chance of a rate hike at the upcoming meeting with a total of 50 bps of
tightening by year-end.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
USDJPY – daily
On the daily chart, we can
see that USDJPY probed above the 160.00
handle but couldn’t sustain a breakout as the price pulled back. From a risk
management perspective, the buyers will have a better risk to reward setup
around the 157.65 support to position for a rally into the 161.95 level. The
sellers, on the other hand, will want to see the price breaking below the
support to open the door for a bigger correction into the 154.00 handle.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDJPY – 4 hour
On the 4 hour chart, we
have a minor upward trendline defining the bullish momentum and the confluence
with the broken resistance around the 159.60 level. We can expect the buyers to
step in here with a defined risk below the trendline to keep pushing into new
highs. The sellers, on the other hand, will look for a break to pile in for a
drop into the 157.65 support.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDJPY – 1 hour
On the 1 hour chart, there’s
not much we can add here as the buyers will look for a bounce around these
levels, while the sellers will target a break. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have Fed Chair Powell speaking. Tomorrow, we get the Tokyo CPI, the US
Consumer Confidence and US Job Openings data. On Wednesday, we have the US ADP,
the US Retail Sales and the US ISM Manufacturing PMI. On Thursday, we get the latest
US Jobless Claims figures. On Friday, we conclude the week with the US NFP report.
