USD/JPY, FTSE 100 Forecast: Two trades to watch

USD/JPY rises as oil prices rise amid concerns over the US-Iran ceasefire lasting

The U.S. dollar is rebounding against the Japanese yen on Thursday, with USD/JPY moving back towards 159 after snapping a three-day losing streak, as markets reassess the durability of the U.S.-Iran ceasefire.

Initial optimism over the two-week truce had triggered broad dollar weakness, but that reaction is now being partially reversed as investors question whether the ceasefire will hold. The agreement already appears fragile, with Israel continuing its parallel conflict with Hezbollah in Lebanon, while Iran has accused the U.S. of breaching the terms of the deal.

President Trump also said U.S. military personnel and naval assets would remain in and around the region until a final agreement is fully secured, underscoring the risk that tensions could quickly re-escalate.

At the same time, Iran is keeping the Strait of Hormuz effectively closed, pushing oil prices back higher after yesterday’s 15% drop. That is particularly important for Japan, which remains heavily reliant on imported energy. Higher oil prices raise the risk of imported inflation and a more stagflationary backdrop for the Japanese economy.

BoJ policy is ringing little relief today despite BoJ Governor Kazuo Ueda saying real interest rates remain clearly negative, keeping financial conditions highly accommodative and reinforcing expectations that the BoJ could still tighten policy further if inflation proves persistent.

On the data front, U.S. core PCE inflation and fourth-quarter GDP are due later, but both releases are backwards-looking and predate the latest Middle East developments, meaning their market impact may be limited unless they produce a major surprise.

USD/JPY forecast – technical analysis

USD/JPY’s recovery from 152.25 in early February ran into resistance at 160.45. The price eased back and has been trading in a holding pattern, capped on the upside by 160.00 and by 157.75 support region on the lower side.

This set-up lends itself to a breakout trade. Buyers will look for a move above 160.00 to reach 162.00, the 2024 high, into play.

Sellers will look for a break below 157.75 to expose the 50 SMA at 157.25. Below here 156.00 the round number comes into play.

FTSE 100 falls on doubts over the ceasefire lasting

The FTSE 100 is pulling back on Thursday after strong gains in the previous session, as markets focus on the fragility of the U.S.-Iran ceasefire and the prospect of a lasting agreement.

Iran has already dismissed the possibility of continued talks with the U.S., while the Strait of Hormuz remains shut, helping lift oil prices by around 3% today after yesterday's sharp falls. That renewed rise in energy prices is once again feeding inflation concerns and weighing on broader risk appetite.

Markets are now pricing in at least one Bank of England rate hike this year, although that is still a much less aggressive outlook than the three hikes priced in at the peak of the Middle East conflict. The key question now is whether renewed energy pressure forces central banks to remain more hawkish for longer.

Oil majors are rebounding after steep losses yesterday as crude prices recover, while utilities are also outperforming thanks to their defensive characteristics, stable revenues and lower sensitivity to economic uncertainty.

By contrast, more cyclical areas of the market — including miners, banks and housebuilders — are coming under pressure after yesterday’s rally, as investors reduce exposure to sectors most dependent on growth optimism and improving sentiment.

For the FTSE 100, the near-term outlook will depend heavily on whether the ceasefire can hold and whether the Strait of Hormuz reopens. If tensions remain elevated and energy prices continue to creep higher, inflation concerns are likely to re-emerge quickly, limiting the scope for further gains in UK equities.

FTSE forecast - technical analysis

The FTSE fell away from its record high, finding support at 9665, around the 200 SMA. The price has rebounded higher, pushing above the 50 SMA and the multi-month rising trendline to a peak of 10,725 yesterday. The price eased back and is testing the rising trendline support.

Should the support hold, buyers will look towards 10,950, the record high.

A break below the support exposes the 50 SMA at 10,390 and below here the 10,270 and 10,000 psychological level.