USD:
The US dollar has been under some pressure since last week as the soft US
inflation data led to a dovish repricing in Fed interest rate expectations.
There’s now just a 15% chance of a rate hike in July, but the probabilities for
a September move remain above 50% (currently 61%).
The US-Iran crisis in the background is keeping inflation risks skewed to
the upside, so the downside in the greenback should remain limited without a
clear de-escalation. We can expect the rangebound price action to persist with
this backdrop.
Axios reported today that Trump is nearing a decision between a 10-day
ceasefire to reopen the Strait of Hormuz and a full-scale war with Israel
against Iran. It goes without saying that a ceasefire would be negative for the
US dollar, while a full-scale war would push the greenback into new highs.
JPY:
On the JPY side, not much
has changed fundamentally. We recently got the usual leaks before the monetary
policy meeting signalling that the BoJ is going to hold interest rates steady in
July. Those leaks didn’t have any impact on the market as a hold was already
widely expected. In fact, the market expects the next rate hike no earlier than
December.
The US-Iran crisis in the
background has been weighing on risk sentiment keeping inflation risks skewed to
the upside while negatively impacting global growth outlook.
The Japanese officials
threat to target speculators with stealth interventions has helped to slow down
the depreciation, but that might not stop the yen from falling into new lows
versus the US dollar if the current US-Iran situation drags on for much longer or
even worsens.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPYis slowly approaching the
cycle high around the 162.85 level. We can expect the sellers to step in around
the cycle high with a defined risk above it to position for a drop back into
the 160.50 support. 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 the recent price action might have formed an ascending triangle and the
series of higher lows suggests the bullish bias remains intact for now. 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 extend the pullback into the
161.50 support next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as buyers will continue to have a better risk to
reward setup around the trendline, while the sellers will either wait for the
price to reach the cycle high or break below the trendline. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
On Thursday,
we get the latest US Jobless Claims figures, while on Friday we conclude the
week with the Japanese CPI report and the Flash US PMIs. The focus remains on
US-Iran headlines.
This article was written by Giuseppe Dellamotta at investinglive.com.