USD/JPY continues to edge higher amid persistent negative yen backdrop, heightened US-Iran risks
USD:
The US dollar bounced back this week as US-Iran risks resurfaced after both countries exchanged attacks. Yesterday, it looked like we were going back to pre-MoU situation as the US launched a series of strikes on Iran in response to Iranian attacks on three vessels in the Strait of Hormuz. Iran retaliated by bombing US bases in Bahrain and Kuwait, warning of further strikes if the US continued.
Moreover, Trump said to reporters at the NATO summit in Turkey that the Memorandum of Understanding was over for him and he didn’t want to engage with Iran anymore. Oil prices extended the gains and inflation worries returned. We got a hawkish repricing in interest rate expectations across the board. The chances for a July hike jumped to 34% and the total tightening by year-end increased to 38 bps.
Luckily, Trump delivered quickly the usual “TACO” moment when he said that he doesn’t think the war is going to restart. Later, he also claimed that the Iranians called him because they want to make a deal. The de-escalation led to some minor dovish repricing and triggered pullbacks across the board. If this was just a limited escalation, the focus should go back to the US CPI which is likely to be the main event of the month (barring US-Iran drama).
JPY:
On the JPY side, the currency erased all the gains from last Thursday’s suspected stealth intervention as the fundamental backdrop continues to point toward more weakness. Yesterday’s US-Iran escalation weighed on the yen, but we are seeing pullbacks today after the de-escalation.
The focus remains on the US CPI report which could give the USD/JPY pair a boost in case the data surprises to the upside or trigger a bigger pullback if the data comes out lower than expected.
As a reminder, Japanese officials recently said that they will stop signalling intervention risks in advance and start focusing on targeting speculators with stealth interventions. They generally look more at the “speed” of the depreciation and not the levels.
On the monetary policy side, nothing has changed and the data is not supporting any urgent rate hike.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPYbounced from the 160.50 support zone and recovered most of the losses experienced in the final part of last week. There’s not much else 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 momentum accelerated once the price broke above the minor resistance zone around the 161.50 level as the buyers increased the bullish bets into new cycle highs. The resistance should now act as support. If the price pulls back into the support, we can expect the buyers to step in 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 back below the support to pile in for a drop back into the 160.50 level.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor downward trendline defining the current pullback. The sellers will likely continue to lean on the trendline to keep pushing into new lows, while the buyers will want to see the price breaking higher to increase the bullish bets into new cycle highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the latest US Jobless Claims figures.
This article was written by flfeaa2662d774455a8d50fa77b791ed5f at investinglive.com.
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