Oil, USD/JPY Forecast: Two trades to watch

Oil recovers above $90 amid a lack of progress in US-Iran diplomacy

Oil prices are holding onto yesterday's gains, having rebounded back above $90 a barrel and broken a five-day losing streak on Thursday. Oil had fallen 17% from cycle highs, but bears lacked the strength to hold the price below $90.

The recovery in oil was driven by a mix of geopolitical developments, including ongoing indirect talks between the U.S. and Iran on the sidelines of the United Nations General Assembly, as well as nerves over reports that the Trump administration could be preparing a 90-day ban on U.S. diesel exports to force domestic energy prices lower.

However, diplomatic talks between the U.S. and Iran have so far shown no concrete sign of progress, keeping oil prices supported. The two sides remain divided over how to bring an end to the war. While both sides agree that diplomacy should continue, Iran's president said that Tehran would never surrender to U.S. pressure.

Iran has also insisted that the Strait of Hormuz will not be reopened until its conditions are met.

Data yesterday showed U.S. crude inventories rose by 3 million barrels to 426.4 million barrels last week, defying expectations of a 641,000-barrel draw.

Attention will remain firmly focused on the Middle East, with any sense of progress towards a diplomatic solution likely to bring oil prices lower. However, in the absence of this, oil prices may continue to grind higher.

Oil forecast – technical analysis

WTI holds a constructive near-term bullish bias as the price remains above the 50 and 200 EMAs. The RSI is neutral after pulling back from overbought territory, suggesting consolidation rather than a decisive reversal.

On the upside, initial resistance is seen at $95, the 38.2% Fibonacci retracement of the move from the $55 low to the $120 high. A break above here brings $100 into focus, ahead of $105 and the September high. A rise above $105 would be needed to create a higher high and extend the bullish move.

On the downside, immediate support is seen at the 50 EMA, which is currently holding around $89, and below here at $88, the 50% Fibonacci retracement. Should sellers take out these supports, it exposes the 200 EMA around $82, followed by the 61.8% Fibonacci retracement at $80.

USD/JPY rises to 158 on widening Fed-BoJ policy outlook

USD/JPY has risen above 158, its highest level in three weeks and sharply higher from the 152 level seen earlier this month, driven by strong gains in the U.S. dollar and a widening Fed-BoJ rate differential.

Expectations for another Fed interest rate hike have jumped sharply as traders focus on persistent inflation and exceptionally strong U.S. economic activity. PMI data yesterday showed the S&P Composite PMI climbing to 58.4 in September, up from 56 in August, marking the fastest output growth rate in more than five years. This points to an economy that continues to build strong momentum.

Immediately following the data, expectations surrounding an October Fed rate hike jumped to 73% from 50% previously. U.S. yields also rose sharply, with the 10-year yield reaching a fresh 19-year high, improving the dollar's carry advantage over the yen.

Attention will now turn to more Fed speakers, U.S. jobless claims and housing starts, with the market looking for U.S. data to validate the repricing. Strong data and hawkish commentary could keep Treasury yields elevated and support the dollar, while softer data could unwind some of the move.

On the other side of the equation, the Bank of Japan raised rates by 25 basis points to 1.25% in September, its highest level in 31 years, but the decision was split by a 7-2 vote.

The BoJ offered limited guidance regarding the timing of future rate increases, failing to convince the market that it was serious about tightening monetary policy aggressively.

Japanese officials will remain alert to renewed yen weakness. With USD/JPY approaching 160, the risk of intervention could increase.

USD/JPY forecast – technical analysis

USD/JPY has extended its recovery from the 152.40 low, rising above the 200 EMA to 158.50 and testing the 50 EMA and falling trendline resistance. Buyers, supported by an RSI above 50, will look to extend gains above this area and bring attention back towards the 160 resistance zone.

On the downside, immediate support is at the 200 EMA around 157.70 and 157.20 horizontal support. A break below here opens the door towards the August low, before attention turns back towards 153, the September low.

Sellers would need to break below this level to create a lower low and extend the bearish move towards 152, the 2026 low.