USDJPY Technical Analysis – Fed’s Bowman and de-escalation weighed on the US dollar

Fundamental
Overview

The US dollar yesterday got
bid across the board in the European session with no strong fundamental background
which suggested that it could have been just some position squaring given the
overstretched shorts on the dollar.

Sure enough, the gains were
eventually completely erased and the greenback got sold off pretty hard on two
key catalysts. The first one came from Fed’s
Bowman who delivered dovish comments and even suggested that she would
support a rate cut in July if inflationary pressures were to be muted. Since
she’s been a hawkish member until yesterday, the market reacted strongly to
such development.

The second catalyst came
late in the US session as Iran’s
retaliation was seen as just a show much like the one witnessed in 2020
with Suleimani. The market started to expect the end of the conflict which was
then validated by Trump’s post on his social media platform.

On the JPY side, nothing
has changed fundamentally, and the currency has been mainly driven by the risk
sentiment. As a reminder, the BoJ kept interest rates unchanged at 0.5% and
reduced the bond tapering plan for fiscal year 2026 as expected at the last
meeting. That was a non-event given that everything was already priced in. The
BoJ continues to place a great deal on the US-Japan trade deal and the
evolution of inflation.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDJPY rallied into the key 148.28 level yesterday morning amid some squeeze
in US dollar shorts. The sellers stepped in around that level to position for a
drop back into the 142.35 support.
That’s where we will likely find buyers positioning for a rally back into the
highs.

USDJPY Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that as the price broke above the 146.28 level, the buyers piled in more
aggressively to target the 148.28 level. The price then reversed pretty quickly
following dovish Fed’s Bowman comments and the bearish momentum increased as
the price broke below the 146.28 level and the end of Israel-Iran conflict came
into sight.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that there’s not much we can do here as the price is trading basically in
the middle of two key levels. From a risk management perspective, the buyers
will have a better risk to reward setup around the 144.30 support zone, while
the sellers will look for a break lower to extend the correction into the
142.35 level next. The red lines define the average daily range for today.

Upcoming
Catalysts

Today, we have the US Consumer Confidence report and Fed
Chair Powell Testimony. On Thursday, we get the latest US Jobless Claims
figures and the Final US Q1 GDP report. On Friday, we conclude the week with
the Tokyo CPI, the US PCE price index and the Final University of Michigan
Consumer Sentiment report.