The US dollar weakened broadly after Trump canceled Iran attacks and signaled a deal, reducing Fed rate hike bets. USD/JPY consolidates ahead of key central bank meetings.
USD/JPY Slides as US-Iran Deal Eases Risk Appetite
The US dollar retreated across major pairs on Thursday following President Trump's announcement to cancel planned military strikes on Iran and pursue a diplomatic resolution. The development dampened safe-haven demand for the greenback, with markets pricing in just 16 basis points of Federal Reserve tightening by year-end, down from 24 bps prior to the deal news.
The shift in geopolitical risk sentiment bolstered appetite for riskier assets, pressuring the dollar while supporting the Japanese yen. However, the yen's gains were limited as positive risk sentiment offset its traditional safe-haven appeal.
BoJ and FOMC Meetings in Focus
The Bank of Japan (BoJ) is poised to raise its policy rate by 25 basis points to 1.00% on Friday, with markets anticipating a pause in bond tapering from the next fiscal year. Governor Ueda's remote participation due to health issues adds uncertainty to forward guidance, as Deputy Governor Uchida will lead the press conference.
The Federal Open Market Committee (FOMC) meets Wednesday, where the Fed is expected to hold rates steady and remove its easing bias. While markets may tolerate a hawkish tone given easing inflation pressures from falling oil prices, emphasis on economic resilience could reignite rate hike speculation.
Technical Outlook for USD/JPY
On the daily chart, USD/JPY faces resistance near the 162.00 cycle high, with a more hawkish BoJ outcome potentially driving a pullback toward 158.00 support. The 4-hour timeframe shows an upward trendline acting as a floor for buyers, while sellers target a break below the 158.00 handle.
The 1-hour chart reveals a symmetrical triangle pattern, with bullish momentum contingent on a break above the downward trendline. Key support and resistance levels align with the average daily range, reflecting heightened volatility ahead of central bank events.
Upcoming Catalysts
- BoJ rate decision (Friday)
- FOMC rate decision (Wednesday)
- US Jobless Claims (Thursday)
- Japanese CPI (Friday)
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