Basic overview
USD:
The US dollar is getting stronger against most major currencies, boosted by positive data released this week. Additionally, rising tensions between the US and Iran seem to be providing further support for the dollar. Currently, the market is anticipating about 57 basis points of easing by the end of the year. However, given the crowded bullish positions against the dollar, it would take a significant factor for it to continue declining. Right now, there isn’t much to suggest a drop. In fact, recent US data has shown some surprising strength, and statements from Federal Reserve officials indicate that there’s a high threshold for more rate cuts. They stressed that a clear improvement in inflation would be necessary before any cuts are even discussed.
Today’s release of the latest US PMI report alongside the fourth-quarter GDP figures is also noteworthy. Good results, especially from the PMI, could provide a further boost to the dollar. There’s also some potential for a U.S. Supreme Court ruling related to President Trump’s tariffs. Should the court rule against the tariffs, the dollar might weaken due to rising global growth expectations.
JPY:
On the yen front, substantial “fact-selling” occurred after Takaichi’s anticipated win in the House of Representatives election; however, apart from that, not much has shifted. Data trends currently don’t support a need for an urgent interest rate hike, particularly with Japan’s CPI showing further easing.
It’s worth noting that the Bank of Japan maintained its interest rates as expected during the last policy meeting and made slight upward adjustments to its growth and inflation forecasts due to expansionary fiscal policies. Governor Ueda didn’t present any fresh guidance but reiterated that interest rates could rise if economic conditions justify it. He highlighted that price trends in April would be influential in deciding on rate hikes. This implies that if data supports it, another rate hike might be on the horizon in April. The market now fully anticipates a hike in June, predicting a total of 51 basis points of tightening by year’s end, which would entail two rate increases.
USDJPY Technical Analysis – Daily Time Frame
Examining the daily chart for USD/JPY, the dollar has rebounded near January lows and key trend lines, leading to a broader rally. A descending triangle seems to be forming around the 152.00 level. Sellers are likely relying on the downtrend line, presenting some risk for prices to fall to the 152.00 support. On the flip side, buyers will want to see a strong move upwards to push their positions up towards the 159.00 mark.
USDJPY Technical Analysis – 4 Hour Time Frame
The 4-hour chart indicates that after breaking out of a confined range on Wednesday, the price gained bullish momentum as new buyers entered the market. Unless there’s a major fundamental shift, buyers should maintain their advantage at least up to the downtrend line, as the structure appears bullish for this timeframe.
USDJPY Technical Analysis – 1 Hour Time Frame
Looking at the hourly chart, there’s a notable support zone around the 154.60 level along with an uptrend line. For buyers, this poses some risks, particularly if they’re aiming to set their targets around the trendline in anticipation of a break above the downtrend line. Conversely, sellers will likely aim for a downside break to push the decline towards the 153.70 level. The red line illustrates today’s average daily width.
Future catalyst
As we wrap up the week, key data such as the US Q4 GDP, December US PCE Price Index, and a preliminary PMI for the US will all be released today, along with a possible ruling from the U.S. Supreme Court regarding President Trump’s tariffs.
