The upward path is still the most prominent for the performance of the price of the USD/JPY, as the currency pair stabilizes around the resistance level of 149.25 at the time of writing the analysis, which is closest to testing the psychological resistance of 150.00 again.
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Today's strong US inflation numbers may be an opportunity for this rebound. On another level. Investors should monitor Israeli rhetoric on any Iranian involvement in recent Hamas attacks over the coming days and weeks, as this would signal a tangible deterioration in geopolitics. This is according to US bank Wells Fargo, where analysts expect the outperformance of the US dollar and Treasuries to be followed by higher oil prices in response to any potential Israeli retaliation related to Iran.
Commenting on this, Brendan McKenna, an economist at Wells Fargo Economics, said: “A direct military conflict between Israel and Iran, or military intervention by other influential parties such as Saudi Arabia and Qatar, would shift the global geopolitical climate in a less favorable direction.”
He added, “While the potential for escalation into a regional conflict is beyond our scope, a broader military conflict in the Middle East will likely lead to reduced oil supplies and higher crude oil prices.”
At the beginning of this week's trading, oil prices and the US dollar jumped as markets reacted to the news over the weekend about the massive attacks carried out by Hamas. However, the market reaction proved to be relatively contained with gains restored as markets assessed the relative containment of the conflict from a geopolitical perspective.
But the market reaction to the Israeli response targeting Iran is expected to be more sustained and severe, according to Wells Fargo.
“As demonstrated during the initial stages of the Russia-Ukraine conflict, rising oil and natural gas prices could inflict serious damage on select economies around the world, especially G10 countries and major emerging market countries that contribute significantly to global growth, such as China and Europe," they said.
In the coming days and weeks, Wells Fargo will monitor evidence and/or rhetoric implicating Iran as a hostile party in the attack on Israel. The latter was keen to limit speculation about its intelligence information regarding any Iranian involvement. Investors should now monitor how the messaging coming from Israel regarding Iran changes over the coming days and weeks.
Wells Fargo analysts warn that a direct conflict between Israel and Iran would significantly worsen the geopolitical backdrop and have direct economic impacts around the world through higher oil prices and deteriorating sentiment. Accordingly, the bank’s analyst added that “In the event of a regional escalation, safe haven assets such as the US dollar and US Treasury bonds are likely to outperform, and we will adjust our expectations to reflect more strength in the US currency and a more risk-sensitive depreciation of the currency at least until the end of this year.” .
USD/JPY Technical Analysis
There is no change in my technical view of the performance of the price of the US dollar against the Japanese yen (USD/JPY), as the general trend is still bullish and the opportunity to return to the psychological resistance of 150.00 is strongly present if the US inflation numbers come stronger than expectations.
But as we mentioned before, overcoming this resistance means the return of talk in the markets about an imminent Japanese intervention in the markets to prevent a further collapse of the Japanese yen against the rest of the other major currencies. Currently, the closest resistance levels for performance are 149.65, 150.20, and 151.00, respectively. On the other hand, over the same time period, the closest support levels for the USD/JPY pair will be 148.30 and 147.00, respectively.
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