USDJPY returns to the "intervention" zone while ongoing US-Iran conflict continues to bolster the US Dollar

Market Fundamentals

US Dollar (USD)

The US dollar began the day with gains following Israel's strike on 30 Iranian fuel depots over the weekend, which pushed oil prices above $100 per barrel. The dollar remains buoyed by its safe haven appeal and shifting expectations toward fewer Federal Reserve rate cuts, as traders adjust their outlook on monetary policy.

Despite a disappointing Non-Farm Payrolls (NFP) report last Friday, the market largely overlooked the data, keeping its attention on the ongoing conflict between the US and Iran. The NFP results contradicted other employment indicators, making them less reliable for traders.

Market participants are now closely watching for signs of easing tensions, as a resolution could spark a rally in risk assets and potentially weaken the US dollar. Donald Trump commented on Truth Social that oil prices are expected to decline quickly once the Iranian nuclear threat is eliminated.

Essentially, when authorities announce the end of the nuclear threat or achieve their objectives, it will likely signal the start of de-escalation, prompting a significant market response.

Japanese Yen (JPY)

There have been no notable changes for the Japanese yen. Prime Minister Takaichi’s opposition and recent economic data continue to discourage expectations for a rate hike in the near future. The latest Consumer Price Index (CPI) in Japan fell below the Bank of Japan’s 2% target, further complicating efforts to increase interest rates.

The Nikkei has experienced a selloff due to the US-Iran conflict and broader risk aversion, which could negatively impact Japan’s economy if the situation persists.

Current market forecasts suggest a possible rate hike in June, with two hikes anticipated by the end of the year. However, this outlook may be overly optimistic. The yen is likely to remain under pressure as expectations for rate increases are delayed.

USDJPY Technical Analysis

Daily Chart

On the daily timeframe, USDJPY has reached the intervention zone near 159.00, which previously saw strong verbal intervention and rate checks in January, resulting in a sharp yen rally and dollar decline. Although traders are cautious at these levels, the prevailing trend still favors further upside.

Sellers may enter the market around this area, setting risk above the January highs in anticipation of a pullback toward the main upward trendline. Conversely, buyers will seek a breakout to push the pair to new highs.

4-Hour Chart

The 4-hour chart highlights a robust support zone near 157.65, where a minor upward trendline converges. Should the price retrace to this support, buyers are expected to defend the level, placing risk below the trendline and aiming for further gains. Sellers, meanwhile, will watch for a breakdown to increase bearish positions toward the primary upward trendline.

1-Hour Chart

On the 1-hour timeframe, a minor upward trendline is guiding the bullish momentum. Buyers are likely to rely on this trendline, managing risk below it to pursue new highs. Sellers will look for a breach to extend the pullback toward the next trendline and target a breakout. The red lines indicate the average daily range for today.

Key Events Ahead

• Wednesday: US Consumer Price Index (CPI) report
• Thursday: US Jobless Claims data
• Friday: US PCE price index, University of Michigan Consumer Sentiment survey, and Job Openings statistics

It’s important to note that, given the current focus on the US-Iran conflict, economic data releases may have limited impact on market movements.