USD/JPY: The Trend of a Stronger Dollar and Falling Oil Prices

■ Crude oil futures prices fell further as the gains in USD/JPY and the US dollar index temporarily slowed.  

■ Markets are focused on whether US inflation and employment data will continue to drive the dollar higher, and USD/JPY may test lower support levels. 
 
During Japan's Golden Week from April 30 to May 6, the USD/JPY exchange rate plummeted from 160.72 yen to 155.02 yen amid market speculation of foreign-exchange intervention by Japanese authorities (buying yen and selling dollars). However, since May 7, USD/JPY has been rising almost daily, reaching a high of 159.34 yen on May 21, recovering about 75% of the losses caused by the approximately 10 trillion-yen foreign exchange intervention. The US dollar index (DXY) rebounded from around 97.62 on May 6, and in line with the dollar's appreciation and the yen's depreciation, rose to a high of 99.515 on May 21. Currently, both USD/JPY and the US dollar index have slightly retreated, and the dollar's rise has temporarily entered a consolidation phase. 
 
On the other hand, WTI crude oil futures prices have fluctuated significantly since April 30th, ranging from the latter half of $88 to the latter half of $110 per barrel, due to uncertainty about the conflict's end in the Middle East. However, with market optimism that the US and Iran are close to reaching a peace agreement and that the Strait of Hormuz is expected to reopen, the recent decline in oil prices has widened further. During Asian trading today, WTI fell to $89.41, near the six-day low of $88.66. However, some argue that, since it will take time for energy supply capacity to fully recover, oil prices are unlikely to return immediately to pre-Middle East conflict levels (the closing price on February 27th was $67.02 per barrel). 
 

 
The market believes that if the decline in oil prices can be halted, it will help reduce downward pressure on the US dollar. Therefore, the market is focusing on whether fundamental factors will continue to drive the dollar higher, especially the US inflation and employment data to be released next week. Currently, the US economy remains robust, and inflation is showing signs of accelerating again. Under the leadership of the new Federal Reserve (FRB) Chairman Warsh, the market widely expects the Federal Open Market Committee (FOMC) to keep policy rates unchanged in June. While market concerns remain about renewed foreign exchange intervention by Japanese authorities, the USD/JPY pair is expected to maintain a relatively strong trend, supported by the area around 158 yen, where the 20-day moving average and the daily Ichimoku Cloud conversion line converge.