The USD is higher to start the NA session. How are the charts impacting trader bias?
TGIF. The USD is higher to start the US session which retraces some of the declines seen yesterday after the sharp run lower helped by potential intervention in the JPY (Selling USD, Buying JPY). In the video above I will run through the technical levels in play for 3 major currency pairs – the EURUSD, USDJPY and GBPUSD – and explain the bias, the risks and the targets of each as the North American session begins.
The biggest catalyst yesterday in the forex was the sharp fall in the USDJPY. Today, the Bank of Japan left its policy rate unchanged at 1.00%, as widely expected, while maintaining that it remains prepared to raise rates further if inflation and economic conditions warrant. The decision itself was largely a non-event, but it came less than 24 hours after suspected Japanese intervention in the foreign exchange market triggered a sharp drop in USDJPY from near 163.32 to a low near 158.00 (and just above the key 200 day MA at 157.93 currently). Rather than building on that move, the dollar recovered following the BOJ decision as the lack of an immediate rate hike reminded markets that Japan’s yield disadvantage versus the U.S. remains the level of rates in each country which favors the carry trade.
The market’s reaction highlights an important point: intervention can disrupt speculative positioning and slow the pace of yen depreciation, but it may not change the underlying interest-rate fundamentals. Unless the BOJ accelerates its tightening cycle or U.S. yields move meaningfully lower, rallies in the yen may prove temporary. Yesterday’s intervention likely reset speculative positioning and served as a warning to traders, but today’s price action shows that monetary policy—not intervention—will likely determine the longer-term direction of USDJPY.
Technically, the 100 day MA is at 160.07 will remain a barometer although the price action today was volatile around the level . That level, the swing low from July 3 at 160.44 and the broken 38.2% of the trend move up from the May low at 160.56 are now upside targets. The high for the day did extend 160.84 which was the 50% of the range from yesterday’s trading.
Yield are higher today across the yield curve with a modest flattening:
- 2 year yield 4.264% up 3.5 basis points
- 5 year yield 4.403%, up 3.0 basis points
- 10 year 4.685%, up 2.3 basis points
- 30 year 5.221%, up 1.4 basis points
Fed speakers will be in focus today as Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan are all expected to discuss their decisions to dissent at this week’s FOMC meeting, where each favored a 25-basis-point rate hike. While their comments are likely to reinforce concerns that inflation remains too elevated and upside risks persist, they should also be viewed through the lens of Chair Kevin Warsh’s new Federal Reserve. Warsh spoke on how the market is doing the tightening but did not favor a tightening. I can see why there could be dissent given the historical precedent to normally do so.
Stocks are higher
- Nasdaq up 125 points
- S&P up 1.62 points
- Dow up 173 points.
This article was written by Greg Michalowski at investinglive.com.