USD/JPY eyes 155, WTI crude oil looks set to bounce: Asian Open

Any hopes that tensions in the Middle East had receded were dashed on Monday when the Israeli army pledged a response to Iran’s recent attacks, which kept appetite for risk suppressed and traders on alert for incoming headlines to drive sentiment.

Nasdaq futures below 18k and on track for a bearish engulfing month around current levels. It's also attempting to have a fourth consecutive bearish week. It’s early days in both instances, but still.

Hence the expectations for the Nasdaq 100 and S&P 500 to outperform the Dow Jones if sentiment allows, and for the Dow to be the preferred choice for bears should sentiment continue to deteriorate.

• The US dollar was again the strongest FX major on a combination of safe-haven flows, stronger economic data and the unwinding of dovish Fed bets
• The Fed Atlanta’s GDPnow estimates US Q1 GDP to be 2.8% (2.4% prior and expected), retail sales also beat expectations at 0.7% m/m compared with 0.4% forecast and the prior month was upgraded to 0.9% from 0.6%
• USD/JPY closed above 154 for the first time since May 1990 which brings a test of 155 into focus today in Asia – a level recently highlighted by ex-FX diplomat Watanabe, as a level that the BOJ could intervene if breached
• Gold formed a bullish engulfing day and reached a record high on a daily closing basis, although it remains below $2400 – a key level for bulls to test today
• WTI crude oil took the headlines within its stride and closed slightly lower on Monday, although the hammer low suggests strong support around $84

Economic events (times in AEST)

• 10:00 – Fed Daly speaks
• 11:30 – China house prices
• 12:00 – China GDP, fixed asset investment, industrial production, retail sales, NBS press conference
• 16:00 – UK average earnings, employment change
• 19:00 – German and eurozone ZEW economic sentiment
• 22:30 – Canadian CPI
• 23:00 – Fed Jefferson speaks
• 23:15 – Capacity Utilisation, industrial production, manufacturing production
• 02:30 – FOMC member Williams speaks
• 03:00 – BOE governor Bailey speaks

USD/JPY technical analysis:

The bullish trend on USD/JPY is undeniably strong, and is only growing with conviction since it broke convincingly above 152 without a stir from the BOJ following strong US CPI data. BOJ officials have been uncharacteristically quiet since, but with USD/JPY trading just 80 pips below 155, I’m now thinking about the warning sent by ex-FX diplomat earlier this month that a break above 155 could prompt intervention.

Given the strength of the trend and sentiment behind the US dollar, I find it hard to believe traders will not at least try to push it to 155. The question I have is whether we’ll see direct gains in Asia, or if we’ll be presented with a pullback towards 154 / daily pivot point before its next leg higher.

If USD/JPY heads for 155, if history is anything to go by we could expect a volatile break above it followed by a shakeout and move back below it. Obviously, traders would be wise to keep an ear out for any comments from the MOF or BOJ to see if it impacts prices. But with the Fed potentially not being able to cut rates at all this year, it might require actual intervention to stall this trend.  

WTI crude oil technical analysis:

The daily chart on WTI crude oil displays a solid uptrend, although it has been within a corrective phase for over a week. Yet with RSI trending higher with prices and without a bearish divergence in sight, I’m seeking crude oil’s next leg higher. And perhaps it is close. A bullish hammer formed on Monday and its lower wick found support at the 20-day EMA, just above the $84 handle.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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