FUNDAMENTAL OVERVIEW

USD:

The US dollar regained some ground at the start of the week as both Trump
and Iran rejected the respective war-ending proposals calling them unacceptable
and leaving the two sides miles apart on any potential agreement. Moreover, there
are some reports pointing to a possible restart of the war, which keeps the
geopolitical risk high.

This kind of headline noise has been going on for several weeks and kept
the price action in rangebound mode as traders continued to wait for new
developments before picking a direction.

Looking ahead, the Fed is slowly abandoning the easing bias amid resilient
US data and elevated energy prices. The reopening of the Strait could weigh on
the greenback in the short-term as oil prices will likely crater and rate cut
bets will increase.

After that though, the focus will quickly turn back to the Fed and the
economic data. With the end of the war, the increase in economic activity could
keep inflation higher for longer and eventually even require rate hikes to
bring it sustainably back to the 2% target that the Fed has been missing since
2021.

There’s also another scenario where the Strait remains closed for longer
and oil prices stay elevated, with the risk that the Fed turns hawkish anyway and
gives the greenback a strong boost given the bearish positioning on the dollar.

JPY:

On the JPY side, nothing
has changed fundamentally. Japanese officials have been intervening in the FX market,
but yen sellers have been quick in fading the moves due to the persistently
negative macro backdrop.

The BoJ recently left
interest rates unchanged at 0.75% as widely expected but the highlight of the
decision weren’t the three dissenters voting for a rate hike, but Governor Ueda
adopting a less hawkish stance.

In fact, he noted that they
want to take a little bit more time in gauging how the Middle East situation
would affect Japan’s economy and acknowledged that underlying inflation is
currently a bit below the 2% target.

He added 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. This is going to keep weighing on the Japanese yen despite the interventions.
All in all, the bias for the Japanese Yen remains bearish.

USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that USDJPY is now trading around the key
158.00 resistance zone. This is where we can expect the sellers to step in with
a defined risk above the resistance to position for a drop back into the major
trendline. The buyers, on the other hand, will want to see the price breaking higher
to pile in for a rally into the 162.00 handle next.

USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, there’s
not much we can add as the main levels remain the resistance zone around the
158.00 level and the major upward trendline. We might just range here until we
get a breakout on either side.

USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, we
have a minor support zone around the 156.50 level. If the price falls into it,
we can expect the buyers to step in with a defined risk below the support 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 trendline. The red lines
define the average daily range for today.

UPCOMING CATALYSTS

Today we get the US CPI report. Tomorrow, we have the US PPI data. On
Thursday, we get the US Retail Sales report and the latest US Jobless Claims
figures.