The recent performance of the US dollar has taken an upward trajectory against multiple major currencies, buoyed by a series of robust US economic data. This trend comes amid escalating tensions between the US and Iran, which may further strengthen the greenback. Despite the market’s anticipation of a 57 basis point easing by the end of the year, the prevailing bearish sentiments towards the US dollar are vulnerable. Analysts argue that without substantial reasons for a decline, the greenback is unlikely to fall significantly, especially given the recent positive surprises in US economic indicators.
Federal Reserve officials have indicated that the conditions required for any additional rate cuts are stringent, highlighting the necessity for clear improvements in inflation metrics. Today’s focus will be on the Flash US PMIs and the Q4 GDP report, both of which could potentially elevate the dollar further if they reflect strength. Moreover, the anticipated ruling from the US Supreme Court regarding Trump’s tariffs could influence market sentiments. A ruling against the tariffs might lead to a dip in the dollar as optimism around global growth rises.
In Japan, the financial landscape is witnessing a “sell the fact” response following Takaichi’s expected victory in the lower house elections. However, crucial economic data has not warranted immediate rate hikes, illustrated by a further easing in the Japanese Consumer Price Index (CPI). The Bank of Japan (BoJ) maintained its interest rates at the last policy meeting, making slight adjustments to growth and inflation forecasts in light of expansive fiscal policies. BoJ Governor Ueda emphasized the need for the economic outlook to materialize before any rate increases occur, mentioning that trends observed in April will play a significant role in their future decisions. Currently, the market is pricing in a potential rate hike in June, with expectations of 51 basis points tightening by the year-end.
On the technical front for the USD/JPY pair, recent daily charts reveal that the currency pair has rebounded from January’s low and a significant trendline, potentially forming a descending triangle with a neckline around the 152.00 level. Sellers may leverage the downward trendline for positions anticipating a drop back to support at 152.00, while buyers will seek a breakout above this resistance to drive further bullish trends toward the 159.00 level.
Intraday analysis on the 4-hour chart shows that USD/JPY has recently broken out of a constricted range, with bullish momentum growing as more buyers enter the market post-breakout. Current structures suggest that unless there are major fundamental disruptions, buyers are likely to maintain control up to the downward trendline.
On the 1-hour chart, a support zone around the 154.60 level indicates an upward trendline that offers a robust risk-reward setup for buyers aiming for a breakthrough above the downward trendline. Conversely, sellers are poised to extend the drop to the 153.70 level if a break lower occurs.
As the week concludes, market participants are eagerly awaiting significant data releases, which include the US Q4 GDP, the PCE price index for December, the Flash PMIs, and the potentially market-moving decision from the Supreme Court concerning Trump’s tariffs. These events will be critical in determining the short-term trajectory of the dollar and the broader market sentiment.
