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USD/JPY was once again the main target for US Dollar bulls amid the ongoing major US-Iran War, which began on February 27 (with a positive twist in the past week and a half).

Energy commodity prices have more than doubled since the imposition of ceaseless supply restrictions from Iran's capture of the Strait of Hormuz. WTI and Brent Crude prices have at some point risen by more than 100% and are remaining about 35% higher than they were just at the beginning of February.

A significant portion of Asian crude oil imports depends on this region. As a result, prices for both physical crude and refined products have soared.

This was seen as a particular strain on the Eastern continent, and the clearest evidence is in the change in Jet Fuel prices.

Jet Fuel Prices Averages in Asia and Europe – Source: IATA. April 17, 2026

For such a populous region, particularly dependent on fossil fuels for electricity production and manufacturing, this has proven quite damaging.

Luckily for Japan, it has held the largest proven strategic oil reserves in the world, but this hasn't helped Forex hawks severely punish the JPY against the dominant US Dollar.

Victim of its own confused Monetary Policy, with largely expected rate hikes progressively fading out due to slower inflation reports and contradicting policymakers, the Land of the Rising Sun was the target of a large FX repricing.

Luckily for the Yen, the conflict is now priced to end soon.

The Strait of Hormuz was announced reopened this morning, with statements from both the US and Iran, and the Administration pushing for it to move forward with the negotiations.

USD/JPY and WTI Correlation. April 17, 2026 – Source: TradingView

USD/JPY has now entered a corrective phase, which could extend if the conflict were to end.

With a Head and Shoulders pattern forming, it will be important to see whether this move indeed has legs, pointing to longer-term bearish positioning in the pair.

Let's dive right into a multi-timeframe analysis for the Gopher – more commonly named, USD/JPY.

USD/JPY Multi-Timeframe Analysis

Daily Chart

USD/JPY Daily Chart. April 17, 2026 – Source: TradingView

USD/JPY is now entering a potentially significant corrective phase, pushing towards a break of the range established since March 10.

Testing and wicking at the 50-Day Moving Average (157.60), mean-reversion buying has faded the morning move, but the Daily RSI, now falling in bearish territory, is pointing to a move that could have just begun.

Let's take a closer look.

4H Chart and Technical Levels

USD/JPY 4H Chart. April 17, 2026 – Source: TradingView

The action shows a bit more details on the morning volatile action, with buyers re-entering at the precise 157.533 lows reached on March 19.

With the RSI quickly falling, the action is now close to oversold which could prompt interesting mean-reversion to offer pullback entry opportunities.

A break of the morning lows could extend to the 155.00 Mini-Support, target of the Head & Shoulders measured move.

Resistance levels

• 158.50 to 159.50 2026 Major Resistance (pullback interest)
• 4H 200-period MA 158.920
• April 2024 160.00 to 160.40 Major Resistance
• June Mini resistance 160.70 to 161.00

Support levels

• 157.533 lows reached on March 19 (bearish below)
• December highs Major Pivot 157.40 to 157.85
• 156.485 4H 200-period MA
• 156.00 Pivotal Support
• 155.00 Mini-Support

Safe Trades and wishing you a pleasant week-end ahead!

Canadian Highlights

• Iran announced that the Strait of Hormuz will be open to commercial traffic during the Israel-Lebanon ceasefire. Details are still unfolding, but oil prices have plunged on the news.
• Ottawa moved earlier this week to blunt fuel‑price pressures by suspending the federal excise tax on gasoline, diesel, and aviation fuels through Labour Day.
• Rebounds in manufacturing and wholesale sales in February offset continued softness in the housing market. Inflation data next week should confirm that underlying trends still argue for the Bank of Canada to keep interest rates steady at its April 29th decision.

U.S. Highlights

• Oil prices plummeted Friday morning as Iran declared the Strait of Hormuz fully open to commercial traffic during the 10-day cease fire between Israel and Lebanon.
• The producer price index rose to a three year high of 4% year-on-year in March, as energy prices rose sharply during the month.
• Federal Reserve officials generally voiced caution in public comments this week, as uncertainty related to the duration of the conflict complicates monetary policy deliberations.

Canada – Tax Breaks and Open Straits

Hopes for a sustained easing in Middle East tensions firmed this morning after Iran announced it would fully reopen the Strait of Hormuz to commercial shipping for the duration of the Israel–Lebanon ceasefire. The move sent WTI prices cratering to below $84/bbl, down 13% on the week (Chart 1). That said, Tehran emphasized the reopening is temporary and conditional on the ceasefire holding, leaving markets sensitive to any renewed flare‑ups. Markets still need to digest the news, but for now, the TSX edged up roughly 1.5%, supported by strength in energy shares, while reduced U.S. Dollar safe-haven demand and supportive commodity prices lifted the CAD by 1.2% to 73.2 cents/USD.

In response to higher fuel costs, the Carney government announced a temporary suspension of federal fuel excise taxes earlier this week. These taxes amount to 10 cents/litre on gasoline and 4 cents/litre on both diesel and aviation fuels. The suspension will run from April 20th through Labour Day (September 7th), delivering about $2.4 billion in tax relief. The move is framed as short-term affordability support for households and fuel intensive sectors. The Liberal government also secured a majority in parliament this week after sweeping three federal byelections in Ontario and Quebec.

We won’t need to wait long to see how Ottawa’s finances are faring, with the Spring Economic Update set for April 28th. This update will show how war related shocks and new affordability measures affect the outlook. Importantly, this will be the first spring update under the new fiscal calendar adopted last fall, and markets will watch closely to see how temporary relief measures and higher defence and infrastructure ambitions are reconciled with medium-term deficit management.

Data releases continued to show subdued, but stabilizing, activity (Chart 2). National home resales were nearly flat in March, and prices slipped. Housing starts also weakened. The Canadian housing market remains stuck between uncertainty and affordability challenges, with early-spring activity lagging typical seasonal levels. However, manufacturing and wholesale sales improved in February, rebounding from January’s decline. This recovery was driven by better transportation equipment output, as auto assembly lines returned to normal after shutdowns for retooling. While these gains are positive, they follow earlier softness and leave activity levels only slightly higher than a year ago.

Next week’s focus turns to March inflation data, due Monday, which will help clarify how much of the recent energy shock is feeding through beyond gasoline. With inflation having been relatively well behaved heading into the conflict, the Bank of Canada (BoC) is likely to look through near term energy driven volatility, provided core measures remain contained. That sets up an important backdrop for the April 29th BoC decision, where we expect the policy rate to remain unchanged at 2.25%. That said, we expect them to monitor this shock carefully and act if circumstances change.

U.S. – Temporary Reopening of Strait of Hormuz Boosts Financial Markets

As the seventh week of the conflict in the Middle East comes to a close, the attention of financial markets remains squarely focused on the comments of officials in relation to a sustained resolution. Iran’s foreign minister announced Friday morning that the Strait of Hormuz would be open to commercial traffic during the recently negotiated 10-day ceasefire between Israel and Lebanon. This was met by a positive reaction in financial markets, but geopolitical risks are likely to remain elevated until a permanent resolution is achieved. The S&P 500 rose 4.4% this week to a new all-time high (Chart 1), while WTI oil fell 16% to $81/barrel as of the time of writing.

Economic data releases were sparse this week, but we did get an update on the housing market, which showed a 3.6% decline in existing home sales in March. The conflict in the Middle East and concerns regarding its impact on inflation has led to upward pressure on U.S. Treasury yields and subsequently mortgage rates. With mortgage rates continuing to fluctuate near a 6-month high of 6.4%, housing demand is likely to remain soft to start the spring buying season.

On the inflation front, the producer price index showed a sharp uptick in March, with energy prices driving the annual percentage change in the final demand index to 4% - the highest level since early 2023 (Chart 2). Similar to the March consumer price index report, spillover of higher energy prices into core inflation was largely absent, but this will be a key risk the Federal Reserve will be monitoring moving forward. If the current downward trend in oil prices is substantiated by a concrete resolution to the current supply disruptions in the Middle East, then this inflation shock is likely to prove transitory. However, risks remain skewed to the contrary the longer it takes for a permanent resolution to be achieved, with material impacts on households and businesses already occurring.

In the Federal Reserve Beige Book for April 2026, the conflict was cited as a major source of uncertainty that complicated decisions around hiring, pricing, and capital investments. In addition to higher energy costs, which were reported across all regions, businesses also reported facing input cost pressures from tariffs on metal products – which were expanded at the start of April – in addition to higher technology costs. Cumulatively, businesses noted these pressures were leading to margin compression, which could weigh on economic growth moving forward when combined with elevated uncertainty.

Comments from Federal Reserve officials this week were cautious overall. New York Fed President Williams stated on Thursday that stagflation risks were a concern, but also that the current stance of monetary policy was well-positioned to deal with the impacts of the conflict. Chicago Fed President Goolsbee also noted this week that the longer the conflict persists, the less likely rate cuts are for this year. In the wake of lower oil prices Friday morning, markets have increased bets to better than 50-50 that the Fed will cut rates a quarter point by the end of the year.

United States:

• Retail Sales (Tuesday), Kevin Warsh Confirmation Hearing (Tuesday)

G10 Economies:

• Canada CPI (Monday), U.K. Labor Market & CPI (Tuesday & Wednesday)

U.S. Week Ahead

Retail Sales • Tuesday

Consumers have largely been unfazed by the initial move higher in prices at the pump. High-frequency credit card data from Bloomberg suggests households have continued to spend into early April (chart), and we forecast broader retail sales popped 2.0% in March.

That gain, however, partially reflects higher prices rather than increased sales volume given retail sales are reported nominally. Overall sales were likely still broad in March, but we expect an outsized gain will stem from gasoline sales specifically reflecting higher prices. Consumer goods prices jumped 2% in March from a month earlier. In stripping out the price effects, sales were weaker last month than the headline data will suggest.

We expect continued but slower spending in the wake of the ongoing conflict in Iran as higher tax refunds and after-tax incomes are largely offsetting the initial hit from higher gas prices. The longer this goes on, and the broader inflationary pressure becomes, the more concerned we grow on consumer resilience.

Kevin Warsh Confirmation Hearing • Tuesday

The Senate Banking Committee is scheduled to hold a confirmation hearing for Kevin Warsh on April 21. Warsh's nomination to be the next Chair of the Federal Reserve has been in limbo since President Trump chose Kevin Warsh for the position on January 29. Completing his confirmation hearing is an important step toward eventually becoming Fed Chair, but a major hurdle still looms, with Senator Thom Tillis (R-NC) still promising to block Warsh's nomination until the criminal probe by the Department of Justice into the Fed is lifted. Powell's term as Chair ends in May, but if Warsh is not confirmed by then, Powell will continue to serve as Chair pro tempore until his replacement has been confirmed.

Warsh's confirmation hearing will be a helpful update on his views on the monetary policy outlook and the Federal Reserve more generally. Warsh's last public comments on monetary policy came way back in November in a Wall Street Journal opinion piece. We are particularly interested in Warsh's near-term views on the appropriateness of the current level of the fed funds rate, the longer run neutral rate and Fed policy implementation questions, such as its communication tools and balance sheet.

We suspect Warsh will play it safe and try to be as vague as possible in most of his answers, a strategy designed to avoid alienating Senate support as well as members of the FOMC. But, he will not be able to duck all the questions, and given his lack of recent public comments and the wide range of views across the Committee at present, any tips or clues on core views will be extremely helpful for understanding the outlook.

G10 Week Ahead

Canada CPI • Monday

We expect March headline CPI to print 0.9% month-over-month implying 2.4% year-over-year, which would be a significant acceleration from 1.8% in February. The February print was deceptively soft on account of the GST/HST holiday, and the March reading will be the last to carry those effects. At the same time, the energy supply shock as a result of the US-Iran conflict will add substantially to the March reading with additional carryover for April. In fact, our early estimate for April inflation is for the year-over-year print to be close or above 3%. On the core measures, we expect a slower move higher with both the year-over-year median and trimmed CPI at 2.4%. We continue to believe the overall effect of higher energy prices is a small positive for growth and more of an inflationary concern for the Bank of Canada (BoC). As such, the BoC’s calculus has likely shifted from a hold-cut decision to hold-hike in upcoming meetings. A +3% inflation reading is a breach of the upper bound of the BoC’s target range and implies negative real rates in Canada at least through end-2026 if current policy is maintained. An April 29 hold looks certain to us with the BoC likely to lean heavily on optionality given uncertainty in the Middle East and the USMCA renegotiation. With a clean reading on the effect of higher energy prices more likely starting in the April reading, June is the earliest possible timing for a BoC hike. We think that the BoC may opt to delay a hike decision till July, especially with the looming USMCA renegotiation deadline for July 1 and a broader presentation of its outlook in the July Monetary Policy Report.

U.K. Labor Market & CPI • Tuesday & Wednesday

Next week will be busy for U.K. data releases, which market participants will closely scrutinize as they assess the economic impact of the conflict in the Middle East and its implications for Bank of England (BoE) policy.

The key release will be the March CPI report. We expect headline inflation to rise to 3.3% year-over-year from 3.0%, driven by the energy supply shock, while core inflation is expected to hold at 3.2%, matching February and in line with consensus expectations. This would mark a significant reversal in the progress toward disinflation seen in the U.K. through February and is likely to persist for several months.

CPI will not be the only release next week. We expect further moderation in wage growth over the three months through February, an unchanged unemployment rate at 5.2% in March and a subdued March retail sales reading, likely reflecting higher fuel prices. Taken together, these data should reinforce the case, in our view, for continued BoE caution and data dependence. While a higher headline inflation print may be viewed as a tightening signal, as long as wage pressures remain contained amid weak growth and elevated unemployment, we expect the BoE to remain on hold at 3.75% this year. Risks are skewed to the upside, particularly if underlying dynamics shift and second-round effects become more prominent.

The dust is settling after favorable headlines on discussions between US and Iran knocked oil prices down notably this week. Still, the reality remains that oil prices above $80/barrel are still a meaningful departure from our price expectations earlier this year. And with additional data reporting in the coming weeks for March, we expect that crosscurrents will continue to be the prevailing theme in the near term.

Next week the focus will be on retail sales for March. Headline retail sales are expected to be boosted by higher gasoline prices—regular gasoline prices spiked 26% in March, and since retail sales report nominal spending, we expect spending likely rose by 1.4% relative to February. Light motor vehicle sales posted another strong month, which will also lift the headline. But excluding both motor vehicles and gas, we expect retail spending was more subdued (+0.2% m/m). Spending growth in the retail control group is expected to slow to +0.2% because we anticipate softer discretionary goods spending, after sizeable pre-tariff front-running last year. Specifically, spending on clothing and sporting goods are expected to slow after having posted continuously strong year-over-year growth. We expect the pace of year-over-year spending in these categories will remain elevated but below the highs witnessed in recent months.

Still, we do not expect the spike in gasoline prices to lead to a reduction in nominal retail sales for two reasons. First, households have historically drawn down savings to compensate for higher gasoline prices. And second, households do not appear to offset higher gasoline consumption with weaker spending in other areas, based on what we have witnessed during prior gas price spikes.

This applies beyond March. We previously estimated a range of scenarios from $75/barrel to $100/barrel. A $100/barrel scenario would represent roughly $150 billion in additional nominal gasoline spending, since each $10/barrel increase in WTI typically translates to a 30-cent increase in gasoline prices. Over the past 30 years, the change in oil prices has been more strongly correlated with personal savings than consumption excluding gasoline. This suggests consumer spending will likely remain broadly intact, with households tapping into savings instead. Our $100/barrel scenario would translate to a 0.7 percentage point hit to the savings rate, bringing it down to 3.3%—the lowest since 2022, when Russia's invasion of Ukraine coincided with the post-pandemic spending boom. And a $75/barrel scenario would knock the personal savings rate down by 0.3 percentage point. We are likely to see a result somewhere in between these two scenarios, with the personal savings rate falling between 0.3 and 0.7 percentage point.

But some of the pain is being masked. The savings rate is reflective of all consumers on aggregate, with higher earners – who have notably higher savings rates – skewing the savings rate higher. Lower income households will have fewer savings to draw down and are expected to rely increasingly on credit in the face of higher gasoline prices. With this in mind, the dip into savings will not be sustainable in the long run, especially since lower income consumers are already showing signs of stress (for example, higher rates of delinquency) and are now starting to feel the pinch of tariff passthrough. The key determinant of consumers’ ability to manage the shock will be duration and magnitude. While consumers can likely manage a $100/barrel scenario in the short run, if prices settle materially higher for an extended period of time, this could become problematic.

Aside from retail data, here’s what else we’re watching:

• Initial jobless claims will likely settle sideways at 205k for the week of April 18th after a downside the prior week. Continuing claims (for the week of April 11th) will be important to watch this coming week, since the week containing the 12th of the month is the reference week for the household survey. Initial claims have held largely steady in the April reference week relative to March. This continues to support our view that the unemployment rate will settle sideways against a continued low net new hire, low fire backdrop.
• Next week we will get the final data from U-Michigan for both consumer sentiment and inflation expectations. Given the recent volatility in energy prices, we would not be surprised if the 1-year inflation expectations are more revision prone than usual. Interestingly, 5-to-10-year inflation expectations have remained relatively well anchored despite a full percentage point uptick in the 1-year expectations preliminary print relative to the March final.

Higher gasoline prices in March in Canada —up 21% from February—are expected to push year-over-year growth in the headline Consumer Price Index up to 2.5% from 1.8% in February, while inflation excluding food and energy ticks slightly higher to 2.2%.

Annual energy inflation will likely rise above 0 for the first time since spring last year when the cancellation of the federal consumer carbon tax sent prices lower in April. In March, gasoline prices were up 6.8% from a year ago on average, but would have been up 23% without the impact of that tax change.

Impact from the removal of the carbon tax will fall out of the yearly comparison in April. Gasoline prices have risen further, and to-date are tracking more than 30% above a year ago. The temporary suspension of federal fuel excise tax (ten cents per litre) coming into effect on April 20 should blunt some of the impact. Still, we estimate rising energy CPI will drive headline inflation above 3% in April.

Food CPI has been biased higher by unfavourable annual comparisons in the prior months due to the federal HST/GST holiday last year and is set to ease in March, as the tax holiday in mid-February 2025.

The focus in the coming months will increasingly shift to the extent surging energy prices spread into broader inflation pressures, best gauged by the Bank of Canada’s core inflation measures that strip out more volatile components as well as effects from indirect taxes.

These core inflation measures showed significant signs of easing ahead of the Middle East conflict. CPI trim and median averaged 1% on an annualized basis from December to February.

Business survey to flag improving demand ahead of high oil prices

Easing (underlying) inflation pressures are consistent with a weak, albeit improving domestic demand flagged by businesses in the Q4 BoC Business Outlook Survey in 2025.

The Q1 update on Monday should tell a similar story, echoing other business confidence measures (eg. CFIB’s Business Barometer) that have mostly improved into early 2026 ahead of the recent oil price surge. Indeed, the survey period for BOS fell in February but likely didn’t capture much of the change in sentiment after the Middle East conflict broke out near the end of that month.

Recent softer core inflation readings should give the BoC more flexibility to look through the initial increase in energy prices from the conflict, but not if pressure broadens and persists. Risk of high oil prices seeping into core inflation, raising inflation expectations will grow the longer prices stay elevated, but are not what we currently expect in our latest base case projections.

For now, we continue to follow market pricing of oil that expects a gradual moderation in prices over the rest of this year. We see little meaningful passthrough to core CPI, and expect the BoC to hold the overnight rate steady at 2.25% for 2026.

In line with Statistics Canada’s preliminary estimate, we expect retail sales expanded 0.9% in February to build on a 1.1% increase in January. Our consumer spending tracker continues to flag resilience in core retail purchases in early 2026 that stretched into March despite sharply higher fuel prices.

In the U.S., the focus next week will be on retail sales for March, where we expect a 1.4% in nominal sales mostly due to higher gasoline prices—regular gasoline prices spiked 26% in March, and stronger light motor vehicle sales. Excluding both motor vehicles and gas, we expect retail spending was more subdued (+0.2% m/m) as discretionary goods spending softens, after sizeable pre-tariff front-running last year.

• Hope of US-Iran deal boosts sentiment but oil prices stay elevated.
• March CPI due in Canada, Japan, New Zealand and UK.
• Flash April PMIs also on tap ahead of central bank decisions.
• Kevin Warsh’s Senate hearing to likely overshadow US data.

Geopolitics to remain in drivers’ seat

Hopes are running high that US and Iranian negotiators will be able to hash out a deal over the coming days to end to the seven-week war that has wreaked havoc on energy supplies from the Persian Gulf. There appears to be a decent chance that a second round of direct talks between the two sides could take place as early as this weekend, following the failed first round a week ago.

Crucially, the fragile ceasefire agreed 10 days ago is due to expire on Tuesday, so at the very least, investors will be hoping for an extension. Reports suggest the US and Iran are close to agreeing to a two-week extension to allow more time for negotiations. Though, President Trump has indicated he would prefer to reach a deal without the need for an extension.

Trump believes the war is “very close to being over” but has nevertheless decided to send additional troops to the Middle East, likely to pile more pressure on Iran to accept a deal. Another positive development is that Israel and Lebanon have also agreed a ceasefire to stop the fighting between Iran-backed Hezbollah in south Lebanon and Israeli forces.

However, the slide in oil prices has come to a pause amid doubts about whether peace can be achieved in the region so quickly and worries about what Trump’s response would be if fresh negotiations were to fail again. There’s been little relief on the supply front after US warships entered the Strait of Hormuz to blockade ships headed to and from Iranian ports, although other vessels are able to pass through safely.

But Trump appears to be open to possible concessions to China, potentially allowing some Chinese tankers to use Iranian ports – something likely to be discussed when he meets President Xi in mid-May.

Any setback in the push for peace in the next few days could easily push oil prices back above $100. However, equities are at greater risk of a correction, as Wall Street has notched up new record highs even before there’s been an agreement on how to bring a permanent end to the Middle East conflict.

Warsh to face Senate test

Barring any unwelcome escalation with Iran, the main focus in the United States will be Kevin Warsh’s confirmation hearing in the Senate. The long overdue hearing before the Banking Committee, which had been put on hold due to ‘delays with paperwork’, finally has been set for Tuesday, April 21.

But there’s a far bigger obstacle than paperwork that could stand in the way of Trump’s nomination finally being confirmed as the next head of the Federal Reserve, replacing Jerome Powell. All Republican votes are needed in the Committee for Warsh’s nomination to be approved. But Republican Senator Thom Tillis continues to threaten to block Warsh’s bid to become Fed chair unless the Department of Justice drops its investigations into Powell and the White House abandons its legal case to fire him.

But with Trump unlikely to agree to such moves, the nomination process could hit a stalemate, adding fresh uncertainty to the markets, as there’s just one month left before Powell’s term as chair expires.

On the data front, the coming week will be rather quiet, with only retail sales and the S&P Global PMIs standing out on the economic agenda, while Fed speakers will be completely absent as the blackout period ahead of the April 29 policy decision starts at midnight on Friday. The data may therefore not attract much attention unless they disappoint by a wide margin, particularly if Tuesday’s retail sales numbers suggest that consumers held back in March when the US began its military strikes on Iran.

Pound braces for stagflationary data

With the US dollar positioned to extend its retreat from post-war highs to a third week, the pound will have an opportunity to shine as it braces for a barrage of UK data. Employment numbers are out first on Tuesday, followed by the CPI report on Wednesday, the flash PMIs on Thursday, and retail sales on Friday.

The UK labour market has posted modest jobs growth since October, but this has been insufficient to bring the unemployment rate lower, which has risen to 5.2%. Any further increase in the jobless rate in the three months to February would dissuade Bank of England policymakers from hiking interest rates too soon.

Yet hawkish MPC members will probably need more convincing to stay on hold if the March CPI figures ring alarm bells about resurgent inflation. UK inflation finally started to cool this year, falling to 3.0% y/y, but with fuel prices jumping on the back of the energy crisis, headline CPI is almost certain to have reversed course in March when the Iran conflict unfolded.

The flash PMI estimates could add to the gloom if there’s further deterioration in April, raising the prospect of stagflation. On a more positive note, it seems that the UK economy got off to a much stronger start in the first two months of 2026 than anticipated and so any upside surprises in the PMIs would give the Bank of England less reason to be cautious, especially if combined with hotter-than-expected CPI data.

Having recovered back above $1.35 this week, the pound could stretch its gains beyond $1.37 from an upbeat set of releases.

Eurozone PMIs eyed as ECB ponders rate hike

The April PMIs will grab the limelight in the euro area too, where stagflationary risks are also rising. However, whilst the European Central Bank was quick to adopt a hawkish stance immediately after oil prices skyrocketed to just under $120, policymakers have since taken a step back, indicating they are in ‘no rush’ for a pre-emptive move, with the Bank of England using similar language.

After dipping in March, the services PMI is forecast to have declined again in April, dropping below 50 amid the strain on consumers and businesses from the spike in energy prices.

The euro could come under pressure from softer-than-expected PMI numbers on Thursday, as the ECB would be less inclined to act prematurely if the economy is in trouble.

Euro traders will also keep an eye on Germany business surveys, with the ZEW economic sentiment index out on Tuesday and the Ifo business climate gauge due on Friday.

Loonie unable to reap reward of Oil jump

Japan, Canada and New Zealand will also be receiving CPI updates next week. The Bank of Canada and Bank of Japan both meet in the last week of April, along with the Fed, ECB and BoE, hence, the inflation releases will be closely watched.

Canada’s key inflation measures moderated in February, putting the BoC in a more comfortable position before the expected pickup in CPI. Moreover, like the US, Canada is less energy dependent than Europe and Asia so the impact of the oil price surge will be less prominent.

Nonetheless, a stronger-than-expected CPI report on Monday could boost the odds of a BoC rate hike, which at the moment, is not fully priced in until October. This could lend some support to the Canadian dollar, which has been lagging the other commodity-linked dollars lately, despite Canada being a major oil exporter.

Can Japanese CPI bolster the Yen?

The yen has also been underperforming, barely benefiting from the dollar’s softness, even though the BoJ’s April decision is the most ‘live’ out of all the central bank meetings that week.

As per usual, the Bank of Japan has been giving mixed signals about the likelihood of a rate increase in April. The Iran war may have turned policymakers more cautious in the short term amid concerns about its effects on the economy, but a hike later in the year has become more inevitable.

Friday’s CPI figures for March will probably not add much clarity for investors as to the BoJ’s thinking, nor will Thursday’s flash PMIs, leaving the yen exposed. Meanwhile, despite its broader pullback, the US dollar has stayed supported above the 158-yen level and stands ready to test the 160 handle, considered to be the danger zone for intervention.

Kiwi awaits Q1 CPI amid RBNZ doubts

Elsewhere, the New Zealand dollar hasn’t been able to keep up with its aussie counterpart in April, amid the Reserve Bank of New Zealand’s somewhat questionable hawkish tilt. The RBNZ echoed its global peers when it signalled that any decision to hike interest rates will depend on seeing evidence of second-round inflationary effects when it met earlier this month.

A 25-bps increase is almost fully priced in for the July meeting, but the odds for action much sooner in May could rise if Tuesday’s quarterly CPI readings come in above expectations.

Another week with volatility induced by the Iran war seems to be ending with oil prices lower, equity prices higher and reduced expectations of interest rate hikes. Reports of progress towards a degree of peace and a potential reopening for traffic through the Strait of Hormuz is largely behind the relative optimism. A key step was the 10-day ceasefire agreed on Thursday between Israel and Lebanon, as an end to the fight there is a key Iranian demand. However, all agreements so far are temporary and appear fragile. For example, Iran and the US seem to have very different views on what will happen with Iranian nuclear resources and with shipping conditions through the Strait of Hormuz, and Hezbollah does not seem convinced about the ceasefire in Lebanon. Hence, there is a clear risk that sentiment could worsen significantly again in coming weeks.

As oil prices have declined, so have expectations of higher inflation and interest rates. We have tweaked our expectation for the ECB, so we now expect a 25bp rate cut in June and another one in July, rather than in April and June. This is based both on the decline in the oil price and on what we see as a slight shift in the signals from the ECB governing board members. In particular, news reports this week said that the board has more or less ruled out an April rate hike.

The short-term interest rate outlook is very dependent on the preferences and analysis of the policy decision makers, as the decision on whether to respond to the oil supply shock is not a clear-cut one. We expect that there will be a response because of the fear that inflation expectations will become engrained, with the 2022 inflation still very much being top of mind. However, there is also a good case to be made that the central bank should not move, as higher energy prices will dampen the economy and that higher interest rates will make that problem worse. That is also why we expect that if rates are hiked, they will be cut again during 2027.

March data has in general shown no or only a modest response to the Iran war in economic activity and non-energy prices. This week we got data for China, where Q1 GDP growth surprised to the upside at 5.0% y/y and house prices declined at a slower rate than previously. However, retail sales are growing at only 1.7% y/y, so the weakness in domestic demand remains.

Next week, we will start to get data for April, most importantly the flash PMIs for most major economies on Thursday. Especially in Europe, we expect to see a sharp decline in manufacturing due to higher energy prices, and the price components could give some important clues about whether energy costs are filtering through to other prices. Note that PMIs can be more difficult to interpret in times of high volatility though. For example, longer delivery times increase the headline index, so also keep an eye on the output subcomponent.

In general, even if energy prices continue to decline over the coming months, we still expect to see a negative effect on economic growth for 2026 in most major economies.

Full report in PDF. 

Crude oil prices were sharply down on Friday on announcement from Iranian government that the Strait of Hormuz was open for all commercial vessels.

Brent crude price fell around 10% immediately after the announcement in early US session, hitting the lowest in five weeks, in the biggest daily drop since March 23.

Fresh drop in oil prices further weakened near-term structure, following surge through ascending and thickening daily cloud, accompanied with formation of daily Tenkan/Kijun-sen bear-cross and strengthening negative momentum.

Bears also broke psychological $90 level and dented important Fibo support at $89.09 (50% retracement of $58.70/$119.47 rally) with weekly close below these levels to confirm bearish signal.

The latest news further boosted hopes for potential end of the war that put fire in entire region of the Middle East and sent shockwaves through the world.

Brent crude contract is on track for the second consecutive massive weekly loss that also to improved sentiment.

Immediate target lays at $86.54 (55DMA), followed by $81.91 (Fibo 61.8%) and $80.00 (psychological).

Broken cloud base ($89.61) and $90 (psychological) revert to resistances.

Res: 89.09; 90.00; 93.32; 94.30
Sup: 86.54; 83.16; 81.91; 80.00

The Euro jumped to two-month high on Friday, as bulls regained traction after eight-day rally paused for narrow consolidation in past two sessions.

Further drop of the dollar continued to fuel risk appetite and provided fresh support to the single currency, which recovered all losses caused by the war in the Middle East in past almost two months.

Fresh strength cracked important Fibo resistance at 1.1826 (61.8% of 1.2082/1.1410 descend) and look for confirmation of bullish signal on weekly close above this level.

The pair is on track for the third consecutive weekly gain, with strong acceleration higher, seen in past two weeks.

Daily studies remain in firm bullish configuration, with the structure being boosted by break above thickening daily Ichimoku cloud that contributes to bullish near-term outlook.

However, strongly overbought Stochastic and north-heading RSI approaching the boundary of overbought territory, send initial signal that bulls may start to face headwinds.

In the current circumstances, consolidation or limited pullback (ideally to find footstep above 1.1750 zone) should provide better levels to re-enter bullish market for 1.1900+ extension.

Keep an eye on developments on the ground over the weekend that would have an impact on Monday’s opening.

Res: 1.1875; 1.1900; 1.1924; 1.2000
Sup: 1.1826; 1.1770; 1.1746; 1.1700

Markets

So much for the initial cautious trading session going into a weekend that centers around a second round of US-Iranian talks. Axios during European afternoon trading cited sources in reporting that both countries are negotiating a cash-for-uranium deal, releasing $20bn in frozen Iranian funds in return for giving up its stockpile of enriched uranium. Iran’s nuclear program has been one of the thorny issues in the ongoing talks and the Axios report suggests the warring parties are at least trying to iron out their differences rather than digging in. A second critical topic is, of course, the Strait of Hormuz. Shortly after the Axios report, Iran’s foreign minister Araghchi declared the passage “completely open” for all commercial vessels with the important nuances that it is “on the coordinated route as already announced by Ports and Maritime Organisation of the Islamic Rep. of Iran” – which at some point might bring up the under international maritime law illegal Tehran tollbooth matter – and “for the remaining period of ceasefire”. A workaround for the former could be found in the 1936 Montreux Convention that deals with the Turkish straits and there have been rumours of backchannel diplomacy massaging parties to add another two weeks to the truce. Arab and European leaders yesterday told Bloomberg that a deal could take up to six months though, offering markets a reality check. But optimism is now back in full swing.

Brent oil falls almost 10% towards and even below the $90 barrier. Dutch natural gas (TTF future) loses 8% to trade back at the (higher) €38/MWh opening level following the first US/Israeli strikes that landed on Iranian soil. The EuroStoxx50 is rallying 2%+, reclaiming the 6k mark for the first time since the conflict erupted. US indices open more than a percent higher. European swap yields tumble 5 (30-yr) to 10 bps (2-yr). ECB tightening bets drop sharply. April is all but priced out (7%) and there are no longer two full rate hikes priced in for the year (43 bps compared to 55 bps just prior to the Axios-Araghchi combo). The 10-yr swap tries to hold on the 3% barrier. US Treasury yields ease 6.8-8.5 bps across the curve, the belly outperforming the wings. Gold jumps to a post-war high of $4880, as does silver at $81.2. The US dollar’s search for a near-term bottom (amid stabilizing oil prices) is in vain. The greenback takes a one-two punch, lifting EUR/USD to the highest level since mid-February around 1.185. The trade-weighted DXY loses the 98 barrier (97.64) with room, technically, for a further correction to 97 and 96.

News & Views

The International Air Transport Association’s assessment of potential jet fuel shortages is sobering. They estimate to start seeing some cancellations in Europe by the end of May for lack of jet fuel. This is already happening in parts of Asia. “Along with doing everything possible to secure alternative supply lines, it’s important that authorities have well-communicated and well-coordinated plans in place in case rationing becomes necessary, including for slot relief,” said Willie Walsh, IATA's Director General. EC spokesperson Itkonen also today said that the EU will be preparing to launch possible coordinated action as regards jet fuels. So far, the market is managing the tightness without shortage but issues may arise in the near future.

Czech National Bank board member Kubicek believes that a rate hike is currently more likely to be the central bank’s next move, but it’s not necessary to expect it right away. Kubicek was already contemplating a rate hike ahead of the Iran war because of the massive growth in loan and mortgages. Now he takes a tightening of financial conditions and downside economic risks into stride and balances it against the risks of second round inflation effects. He doesn’t think that the current 3.5% policy rate is too restrictive. Strong growth, increasing real wages and sticky core inflation (2.9% Y/Y) all warrant such stance.