Overview
The recent rally of the US dollar and USD/JPY has lost momentum as market sentiment shifts from panic to cautious optimism regarding the ongoing conflict in Iran. Initial fears of supply disruptions in oil prices have eased, leading traders to refocus on macroeconomic indicators such as US inflation data and Federal Reserve policy expectations.
Market Reactions
Crude oil prices experienced a significant surge of over 30% due to concerns about potential supply disruptions through the Strait of Hormuz. However, this spike was quickly reversed as traders began to consider the possibility of a swift resolution to the conflict, particularly following comments from President Trump suggesting that the war with Iran "could be over soon." This has led to a resurgence in risk appetite, impacting safe-haven assets like the US dollar and USD/JPY.
Geopolitical Context
The US and its allies have conducted military strikes against Iranian targets, reportedly resulting in the death of Iran's Supreme Leader, Ali Khamenei. Despite this, there has been no significant change in Iran's political structure, as Mojtaba Khamenei has stepped into the leadership role. The lack of clarity regarding the outcomes of these military actions has left traders uncertain about the geopolitical risk premium.
Market Performance
As risk appetite returned, major US indices saw gains, with the Nasdaq 100 rising by 1.3%, the S&P 500 increasing by 0.85%, and the Dow Jones up by 0.5%. The US Dollar Index (DXY) faced resistance at 99.70, closing with a bearish outside day, indicating potential for a pullback. Traders are now closely monitoring upcoming economic data, including CPI and PCE reports, which could influence Federal Reserve rate cut expectations.
Technical Analysis
Technical indicators suggest a potential near-term top for the US dollar, with a shooting star candle forming on the USD/JPY daily chart. The resistance level around 2025 high has been tested, and bearish divergence on the RSI indicates a possible pullback. Traders are advised to watch for movements within Monday's range, with potential targets set at 157 and 156.44 for USD/JPY.