FundamentalOverview

The USD got a boost acrossthe board yesterday on positive expectations about the first trade deal thateventually was revealed to be with the UK. Trump announcedthat tariffs on cars and steel will be lowered but the most important part wasthat the 10% “global tariff” will remain in place.

The US officialshighlighted that the 10% is going to be the floor and the trade deal with theUK is going to be the baseline for all other deals. There’s a risk now that wereached the peak in de-escalation and other countries might not like the 10%floor, especially the EU. For now, the Federal Reserve Governor Waller’s scenario#2 is playing out.

Recall, that he said 10% orlower tariffs would make him less inclined to cut rates faster. This is now triggeringa repricing in interest rates as the market scaled back the easing expectationsto 68 bps by year-end. We were at more than 80 bps at the start of the week. Itgave also the greenback a boost as the market unwound the crowded dollarshorts.

On the JPY side, thecurrency has been driven mainly by global events rather than domesticfundamentals. Alongside the Swiss Franc, it’s been the favoured safe haven inthe currencies space amid the swings in risk sentiment. On the monetary policyfront, the BoJ kept interest rates unchanged as expected anddelivered a dovish message.

This was then echoed by BoJGovernor Ueda which placed a great deal on trade developments. In summary, thecentral bank is likely to go faster on rate hikes in case we get a good tradedeal and delay rate adjustments in case the trade deal disappoints.

USDJPYTechnical Analysis – Daily Timeframe

On the daily chart, we cansee that USDJPY continues to erase the April losses and it’s now approachingthe major trendline. The sellers will likely lean on the trendline with a defined risk above it toposition for a drop back into the 140.00 handle, while the buyers will look fora break higher to increase the bullish bets into the 151.00 handle next.

USDJPY TechnicalAnalysis – 4 hour Timeframe

On the 4 hour chart, we cansee that we have now an upward trendline defining the bullish structure on thistimeframe. From a risk management perspective, the buyers will have a betterrisk to reward setup around the trendline, while the sellers will look for abreak lower to increase the bearish bets into new lows.

USDJPY TechnicalAnalysis – 1 hour Timeframe

On the 1 hour chart, we cansee that we have a minor upward trendline defining the bullish momentum on thistimeframe. The buyers will likely continue to lean on the trendline to keep pushinginto new highs, while the sellers will look for a break lower to extend thepullback into the next trendline. The red lines define the average daily range for today.