FUNDAMENTAL OVERVIEW
USD:
The US dollar sold off
across the board on Wednesday after Trump announced on Truth Social a two-sided
ceasefire agreement for two weeks while the US and Iran negotiate a lasting
peace deal. Since then, the price action became more rangebound due to Israeli attacks
against Lebanon which the Iranians have been saying was part of the ceasefire
agreement.
The good news is that Iran
held off from retaliating ahead of the peace talks in Islamabad this weekend.
But the uncertainty has been keeping the markets in check, nonetheless. Everything
hinges on these peace talks as the restart of the war would create strong
distress in the markets and potentially lead to a global recession.
In the short-term, a peace
deal would weigh on the greenback amid renewed rate cut bets and unwinding of
the March positioning. On the other hand, a breakdown of negotiations would
give the dollar another boost, potentially pushing it into new highs.
JPY:
On the JPY side, the
currency strengthened recently just because of dollar weakness and as things
settled a bit, the yen restarted its downward trend as the Japanese macro
conditions remain negative. 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 in favourable conditions
for a rate hike. Right now, the market is pricing in a 51% chance of a BoJ hike
in April.
The central bank is more
likely to hold interest rates steady though 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.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY couldn’t reach the 157.65
support and bounced around the 158.00 handle. There’s not much we can glean
from this timeframe, so we need to zoom in to see some more details.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price is struggling around the 159.30 resistance zone. The sellers are
stepping in here with a defined risk above the resistance to position for a
drop into the 157.65 support. The buyers, on the other hand, will want to see
the price breaking higher to extend the rally into the downward trendline
around the 159.80 level.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
have an upward trendline defining the bullish momentum on this timeframe. The
buyers will likely continue to lean on the trendline to keep pushing into new
highs, while the sellers will look for a break to increase the bearish bets
into the 157.65 support next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the US CPI report and the University of
Michigan Consumer Sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.
