BoJ remains cautiously on hold

The USD was relatively steady against its counterparts yesterday and during today’s Asian session, with a bruised safe haven profile underscored by the Israel-Iran conflict. The two Middle Eastern foes continue exchange attacks, with the situation continuing to escalate further. US President Trump stated on his Truth social account that Iran should have signed the nuclear ‘deal’ and called for an evacuation of Iran’s capital, Tehran, with the latter being particularly worrisome. The conflict poses a new risk factor on a geopolitical level, which in turn may affect monetary policy across the world. We expect the increased risk to be reflected also in the Fed’s interest rate decision tomorrow, or at least the bank to hint towards that risk. In a more direct hit, oil prices have jumped since Thursday and further possible escalation of the situation could have a strong bullish effect on oil prices in the coming days. Yet the US seems to propose negotiations with Iran about its nuclear program this week which if started may signal the beginning of a de-escalation process which in turn could ease market worries and weigh on oil prices.

WTI’s price action corrected lower yesterday breaking the 72.20 (S1) support line, now turned to resistance and during today’s Asian session showed some signs of stabilisation. Despite the correction lower, we remain bullish as the upward trendline remains intact, while the RSI indicator remains at the reading of 70 implying a strong bullish sentiment on behalf of the market for the commodity’s price. On the other hand the commodity’s price remains close to overbought levels and the correction lower could be extended. Should the bulls retain control over WTI’s price , we may see its price action breaking the 72.20 (R1) resistance line and start aiming for the 75.65 (R2) resistance level. Should the bears find a chance to take over, we may see WTI’s price action breaking the 68.40 (S1) support line, continue to break the prementioned upward trendline and continue even lower to reach if not breach the 64.00 (S2) support level.

In today’s Asian session BoJ remained on hold at 0.5% as was widely expected, yet there is a relative cautiousness on behalf of the bank to proceed with further normalisation of its monetary policy. In its accompanying statement the bank noticed some weakness in the recovery of the Japanese economy may be adding pressure on the bank to extend the pause of its rate hiking path. The bank also highlighted the risks in the outlook of the Japanese economy such as the possible impact of the US tariffs on trade. In reflection of the above worries the bank announced a slower tapering of its QE program which could be perceived as dovish, yet BoJ Governor Ueda’s press conference is still pending as these lines are written and could alter the market’s perception of the release.

USD/JPY continues its sideways fashion within the boundaries set by the 145.50 (R1) and the 142.20 (S1) levels. We maintain our bias for the sideways motion to continue between the prementioned levels. It’s characteristic that the RSI indicator is running along the reading of 50, while the Bollinger Bands have narrowed implying less volatility. For a bullish outlook we would require the pair to break the 145.50 (R1) resistance line and start aiming for the 148.20 (R2) resistance level. For a bearish outlook we require USD/JPY to break the 142.20 (S1) support line and start aiming for the 139.60 (S2) support level.

Other highlights for the day:

Today we get Germany’s ZEW indicators for June, the US retail sales for industrial output both for May and on a monetary policy level, we note the release of BoC’s summary of monetary policy deliberations of the June meeting, and we get the API weekly crude oil inventories figure. In tomorrow’s Asian session, we get New Zealand’s current account balance for Q1, while from Japan we get machinery orders for April and the trade data for May.

WTI  Daily Chart

• Support: 68.40 (S1), 64.00 (S2), 59.85 (S3)
• Resistance: 72.20 (R1), 75.65 (R2), 79.35 (R3)

USD/JPY Daily Chart

• Support: 142.20 (S1), 139.60 (S2), 137.25 (S3)
• Resistance: 145.50 (R1), 148.20 (R2), 151.20 (R3)

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Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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