USD:
The US dollar opened the week lower yesterday after the US halted its
strikes following 13 consecutive days of attacks, while Iran pledged to
maintain a ceasefire so long as the US remained on pause.
This has led to some optimism as traders took this
latest development as an early sign of a potential de-escalation and triggered
a selloff in oil prices.
Despite this positive development, the greenback
erased the losses and printed a new weekly high. The support hasn’t come from
Treasury yields or economic data, so this suggests that it might have been just
hedging activity ahead of tomorrow’s FOMC decision.
The Fed is expected to hold interest rates steady but there might be one or
two dissenters voting for a rate hike at this meeting already. The forward
guidance will likely remain limited again under Fed Chair Warsh, but based on
recent comments from policymakers, the pace of monthly inflation increases will
dictate the potential tightening pace.
If the situation in the Middle East remains calm and the Fed delivers on
expectations without any hawkish surprise, then we might see some short-term relief
rally in the markets which could weigh on the US dollar. On the other hand, if
we get another escalation or the Fed delivers a hawkish surprise, then the
greenback will likely get a boost and extend the gains into new highs.
JPY:
On the JPY side, the BoJ is
expected to hold interest rates steady on Friday while upgrading growth
forecasts and potentially near-term inflation outlook. The focus will be on the
forward guidance after a Bloomberg report last week suggested that some BoJ
officials viewed the weaker JPY as adding upside inflation risks and that they
would be open to raise interest rates at a faster pace.
Following the report, traders
brought forward rate hike expectations with now a 60% chance of a move in October
(it was December before the report). The JPY spiked to the upside but gave back
the gains pretty quickly as the overall fundamental picture remained unchanged.
Keep in mind that Japanese
officials might start looking for stealth interventions to slow down the
depreciation although the trend is unlikely to change without a dovish
repricing in Fed interest rate expectations or a faster BoJ tightening pace. Traders
will focus on BoJ Governor Ueda press conference and look out for hints or
explicit signals about faster tightening.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPYbroke above the 162.85 level
and extended the gains into new cycle highs before consolidating. The 162.85
level might now act as support. If we get a pullback, the buyers will likely
step in around the support with a defined risk below it to keep pushing into
new highs. The sellers, on the other hand, will want to see the price falling
below the support to pile in for a drop into the 160.50 support next.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have
the upward trendline defining the bullish structure. If we get a pullback into
the trendline, we can expect the buyers to lean on the trendline with a defined
risk below it to keep pushing into new highs, while the sellers will want to
see the price breaking below the trendline and the 162.85 support to pile in
for a drop into the 160.50 support next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the price action has been mostly rangebound since
last week. From a risk management perspective, the buyers will have a better
risk to reward setup around the trendline, while the sellers will gain more
conviction for a bigger correction with a break below the support. The red
lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
Consumer Confidence report and Trump-Netanyahu meeting. Tomorrow, we have the
FOMC rate decision. On Thursday, we get the US PCE price index, the Advance Q2
GDP and the Jobless Claims figures. On Friday, we conclude the week with the Tokyo
CPI, the BoJ rate decision and the US Q2 Employment Cost Index. Traders will
also keep monitoring US-Iran headlines.
This article was written by Giuseppe Dellamotta at investinglive.com.
