FUNDAMENTAL OVERVIEW
USD:
The US dollar has been mostly rangebound for the past months with bouts of
weakness on positive US-Iran headlines, and strength on negative developments.
Last week, it gained ground in the first part of the week on heightened tensions in
the Strait of Hormuz as US and Iran continued to exchange fire but then lost it
all on expectations of an imminent deal after Axios reported on Thursday that
US and Iran had reached a 60-day memorandum of understanding (MoU) and the
agreement required final approval from Trump.
Yesterday, the greenback got a boost after Tasnim reported that Iran will
stop message exchange with the US in protest against Israeli strikes on Lebanon
but eventually gave back the gains as Trump said on Truth Social that there would
be no troops going to Beirut, and that he had a very good call with Hezbollah
which agreed that all shooting will stop.
Now, amid all this noise, the signal is that nobody wants to restart the
war, which is good, but the Strait of Hormuz will remain closed until there’s a
deal. Trump looks in no hurry whatsoever with the stock market trading at
record highs, and that’s going to keep oil prices persistently elevated.
We are approaching the June FOMC meeting and it’s now almost assured that
the Fed is going to abandon the easing bias. If nothing changes before then, we
might get a more hawkish than expected decision which is going to reverberate
across markets and give the US dollar a strong boost.
Therefore, in the short-term, a resolution and the reopening of the Strait
will likely weigh on the greenback on falling oil prices and increased rate cut
bets. But if the Strait remains closed for longer and oil prices stay elevated,
the risk of the Fed being forced to hike anyway increases, which should keep supporting
the greenback.
JPY:
On the JPY side, nothing
has changed fundamentally as the macro backdrop remains negative for the yen
amid below target inflation and economic headwinds stemming from the US-Iran
situation. On Friday, we got the latest Tokyo CPI report where core inflation
fell further below the 2% target.
The market is still pricing
in a 68% chance of a rate hike at the upcoming meeting, but these expectations
look out of touch with reality and could weigh on the JPY further as rate hike
bets get unwound.
As a reminder, the BoJ left
interest rates unchanged at 0.75% as widely expected at the last meeting but
the highlight of the decision weren’t the three dissenters voting for a rate
hike, but Governor Ueda adopting a less hawkish stance.
He mentioned that they
expect underlying inflation to be around 2% from second half of 2026 but
admitted that he doesn’t know how many months it would take to gauge timing of
their next rate hike.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPY continues to slowly edge
higher and it’s getting closer to erase the entire drop since April. The
natural target should be the cycle high around the 162.00 handle. If we get
there, we can expect the sellers to step in with a defined risk above the cycle
high to position for a correction into the major trendline. The buyers, on the
other hand, will look for a break higher to increase the bullish bets into new
highs.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price broke out of a consolidation last week and pulled back to retest
it before rallying into new highs. If we get another pullback into the support
where we have now a minor upward trendline for confluence, 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 lower to pile
in for a drop into the 158.60 level next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, the
price seems to be breaking below the minor upward trendline that’s been
defining the bullish momentum on this timeframe. The sellers will likely pile
in on the break to position for a pullback into the 159.30 support next. From a
risk management perspective, the buyers will have a better risk to reward setup
around the support zone, but more aggressive buyers will likely keep leaning on
the minor trendline to keep pushing into new highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US Job Openings data. Tomorrow, we have the US ADP
report and the US ISM Services PMI. On Thursday, we get the latest US Jobless
Claims figures. On Friday, we conclude the week with the Japanese wage data and
the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.
