FUNDAMENTAL OVERVIEW
USD:
The US dollar opened higher
today after Israel
bombed 30 Iranian fuel depots on Saturday and oil prices surged above 100$
per barrel. The greenback continues to be supported on safe haven demand and
the hawkish repricing in interest rate expectations as traders pare back the
Fed rate cut bets.
The weak NFP report on
Friday was basically ignored as the market focus remains on the US-Iran war. The
NFP was also completely the opposite of what the other jobs data have been pointing
to, so it’s hard to trust it.
Traders are now laser
focused on de-escalation as that would trigger a strong relief rally in risk
assets which is likely to weigh on the US Dollar. Trump
said on Truth Social that oil prices will drop rapidly when the destruction
of the Iran nuclear threat is over.
Reading between the lines
it means that once they declare that the nuclear threat is over or that they
reached all their goals, it would mark the start of de-escalation and the
market will react to it.
JPY:
On the JPY side, nothing
has changed as PM Takaichi’s opposition and, more importantly the data, haven’t
been supporting a rate hike any time soon. The latest Japanese CPI fell below
the BoJ’s 2% target, dealing another blow to the central bank’s efforts to
further raise interest rates.
The selloff in the Nikkei due
to the US-Iran war and the general risk aversion is not helping either as it
could weigh on economic activity the longer it drags on.
The market is still pricing
a rate hike in June at the earliest with a total of two rate hikes by year-end.
This might turn out to be too optimistic. The Japanese yen will continue to
weaken as rate hike expectations get pushed further out.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY finally reached the “intervention”
level near the 159.00 handle. This is where we got the strong verbal
intervention in January followed by rate checks that triggered a strong rally
in the Japanese Yen and a selloff in the US Dollar. Traders will now be extra cautious,
but the path of least resistance remains to the upside.
The sellers will likely
step in around these levels with a defined risk above the January highs to
position for a drop back into the major upward trendline. The buyers, on the
other hand, will look for a break to increase the bullish bets into new highs.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see that we have a strong support zone around the 157.65 level where we can also
find the confluence of the minor upward trendline. If we get a pullback into
the support, we can expect the buyers to step in 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 increase the bearish bets into the major upward trendline
next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have
a minor upward trendline defining the bullish momentum on this timeframe. The
buyers will likely lean on the trendline with a defined risk below it to keep pushing
into new highs, while the sellers will look for a break to extend the pullback
into the next trendline targeting a breakout. The red lines define the average daily range for today.
UPCOMING CATALYSTS
On Wednesday we have the US CPI report. On Thursday, we get the
latest US Jobless Claims figures. On Friday, we conclude the week with the US PCE
price index, the University of Michigan Consumer Sentiment survey and the Job
Openings data. As a reminder, the market focus right now is solely on the
US-Iran war, so the data might not matter much.
This article was written by Giuseppe Dellamotta at investinglive.com.
