USD/JPY, Oil Forecast: Two trades to watch

USD/JPY holds steady amid intervention threat

• Japanese officials warned over speculative FX trades
• 152.00 seen as a clear line in the sand
• Fed speakers in focus
• USD/JPY hovers below 151.90

USD/JPY is holding steady at the start of the new week after booking gains of 1.6% last week.

The pair rallied last week despite the Bank of Japan hiking interest rates, in a move that was considered symbolic and a one-and-done hike. Meanwhile, despite hotter-than-expected inflation, the Federal Reserve indicated it will cut three times this year.

Kicking off the new week, comments from Japanese officials warning against speculative FX moves are holding back the sellers for now but are unlikely to bring yen bulls back to the game. Government officials have issued warnings recently over the currency’s decline. The threat of currency intervention from Japanese authorities sees 152 as a considerable line in the sand and could prevent the pair from pushing above the multi-decade high.

The US dollar gained across the board last week after a flurry of central bank meetings, including an increase in the Swiss National Bank, which became the first major central bank to cut rates. While the Fed pointed to three rates, ongoing strength in the US economy and sticky inflation may prevent those moves from happening.

Looking ahead, there are no major releases today. Some attention could be on US new home sales and several Fed speakers, including Bostic and Cook. Their comments will be watched closely for clues about whether June could still be the start of the rate-hiking rate-cutting cycle.

Looking out across the week, the main focus will be on Friday's US core PCE, the Federal Reserve's preferred gauge for inflation. The market will want to see that inflation is cooling to support the view that the Fed will be cutting interest rates potentially as soon as June.

USD/JPY forecast – technical analysis

USD/JPY trades between the 151.90 multidecade high and 150.90, the January 2024 high. A move above 2151.90 could prove challenging, given that Japanese authorities are expected to decline this level. Above here, a move towards 153.50, the rising trendline resistance, could be on the cards.

On the downside, support is at 150.90 and 150.00, round numbers. Beyond 149.10, the 50 SMA comes into view.

Oil rises as geopolitical tensions rise.

• Russia – Ukraine attacks on energy infrastructure intensify
• UN Security Council will vote on a draft resolution for a ceasefire in Gaza
• USD has risen at a monthly high
• Oil trades in a rising channel

Oil prices are inching higher after modest losses last week. Escalating tensions in the Middle East and between Russia and Ukraine raise concerns over supply and despite a stronger US  dollar.

Receding ceasefire hopes in the Middle East and a rise in attacks on energy infrastructure in Russia and Ukraine keep the oil market worried over tight supply.

Moscow launched massive missile and drone attacks against Ukraine’s energy infrastructure. The move came after Ukraine’s recent attacks on Russian energy facilities, with seven refineries targeted by drones this month, which raised concerns over global oil supplies.

In the Middle East, Israeli forces continued to clash with militants in Gaza. The United Nations Security Council is due to vote later today on a new draft resolution for an immediate cease-fire in Gaza. S

Meanwhile, U.S. oil rig counts fell by 1 to 509 last week, indicating a lower future supply.

Oil gains could be capped by USD strength. The USD rallied 1.6% last week and hovers around a monthly high on bets that other global central banks could start cutting rates before the Fed.

A stronger USD makes oil more expensive for buyers with other currencies.

Oil forecast – technical analysis

Oil continues to trade within a rising channel dating back to mid-December. The price has eased away from the 4-month high of 83.10 reached last week, finding support around 80.50.

Buyers will look to recover towards 83.10 and 84.90, the August high, ahead of 85.00, the psychological level.

Meanwhile, sellers will look to take out support at the 80.50 -80.00 zone to expose the 200 SMA at 78.30. A break below here could see the sellers gain traction.