Over the weekend, there’s a potential for a correction to strengthen, as the dollar’s upward momentum may have exhausted after all the positive factors, and attention may turn to Middle East risks.
Following the recent strong US economic indicators, the dollar has found support from rising US bond yields and the fading expectations of rate cuts this year. Fed Chair Powell has shifted to a more flexible stance, retracting from the previous outlook of three rate cuts this year, aligning more closely with market expectations. Some policymakers are even suggesting the possibility of rate hikes.
With most of the dollar-positive factors now in play, attention turns to the escalating geopolitical risks in the Middle East. Tensions between Israel and Iran have intensified, with retaliatory actions on both sides. Although Israel’s Gaza incursion has eased, the situation in the Middle East has entered a new phase. While the US has shown restraint, exercising its veto power at the Security Council, it maintains a pro-Israel stance.
For USD/JPY, even if it breaks through the 152 level, there’s been no intervention from the government or the Bank of Japan. The next focus would be 155. Ahead of the Bank of Japan’s decision next week, it’s important to be cautious of speculations or leaks from media reports over the weekend. The Bank of Japan’s decision, outlook report, and Governor Kuroda’s press conference are scheduled for Friday, the 26th.
There are no major economic releases scheduled for the rest of the international markets. In terms of speeches and events, we have presentations from Ramsden, Deputy Governor of the Bank of England, Goolsbee, President of the Chicago Fed, Mann, MPC member of the Bank of England, and Nagel, President of the Bundesbank. Starting this weekend, US policymakers will enter the “blackout period” refraining from public comments. They’ve been adopting a stance aligned with market expectations of a delayed rate hike.
Today, news of Israel’s retaliation against Iran tilted the market back towards risk-off sentiment. However, Iran has indicated its intention not to retaliate, leading to a return to risk-on sentiment. Oil prices are also declining.
Israel’s small-scale attack on significant facilities, including nuclear installations in Isfahan province, suggests its capability to strike at Iran’s vital points at any time.
Iran likely doesn’t want to escalate the situation further. This week has been characterized by alternating between calm and retaliatory actions, but perhaps now it’s coming to a resolution.
Primarily, we’ll continue to look for opportunities in the direction of risk-on sentiment.
Additionally, tomorrow marks the long-awaited Bitcoin halving. It’s crucial to keep an eye on cryptocurrency price movements.
