- US prepares for possible land assault
- Mixed messages and disruptions around the Hormuz adding to volatility
- US NFP remains major risk event for week
- USDJPY lingers near the intervention danger zone
Over the weekend, Iran accused the US of preparing for a possible land assault even as Trump sought talks to end the conflict.
This marked another dangerous turning point in the Iran war which, has entered its fifth week.
Also on Sunday, Iran threatened to target American and Israeli universities in the Middle East as part of its war effort.
These unfavourable developments cast a shadow over Pakistan’s hopes for hosting peace talks between both sides.
Given the mixed messages from Trump about when the war could end, this could lead to more volatility as traders scramble to price the uncertainty.
FX: USDJPY flirts around “danger zones”
DID YOU KNOW:
Last Friday, USDJPY crossed above 160 for the first time since July 2024…
WHAT DOES THIS MEAN?
Back in 2024, this level was defended twice by the Japanese government –
- First intervention (Late April/Early May 2024)
- Second Intervention (July 2024)
If history repeats itself and an intervention becomes reality, this could trigger an aggressive selloff on the USDJPY pair.
WHAT COULD MOVE USDJPY THIS WEEK?
The Iran conflict may fuel risk aversion, stimulating appetite for safe-haven assets like the Yen.
Note: Japan imports 90% of its crude from the Middle East.
Oil price volatility may also influence the Japanese Yen –
- Japan sells Yen to buy dollar-denominated oil
- This could translate to cost-push inflation
- Rising inflation puts the BoJ in a tight spot – hike to tame inflation/cut to support growth.
POTENTIAL SCENARIOS:
BULLISH: Another solid daily close above 160.00 may encourage an incline toward 161.00 and 162.00.
BEARISH: Weakness below 159.50 could see prices slip toward 158.00.
