Daily Briefing

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Price Action, Swing & Short Term Trade Setups

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Talking Points:

- Minutes from the most recent FOMC meeting will be released to markets at 2:00 PM ET today.

- While Chair Yellen offered more recent commentary as of last week, the results of these meeting minutes could highlight the broader-view within the bank around inflationary pressures.

- If you’re looking for trading ideas, check out our Trading Guides. And if you’re looking for ideas that are more short-term in nature, please check out our Speculative Sentiment Index (SSI) Indicator.

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Today at 2:00 PM ET, meeting minutes from the most recent FOMC rate decision will be released to markets. This was, of course, a rate decision that produced no actual rate movements; but given the context of being just a month and a half after the second rate hike of the past 10 years, and also given the Fed’s expectation to hike a full three times in the calendar year of 2017 – and considerable focus was paid in attempting to estimate the Fed’s tolerance for near-term rate hikes.

And while the Fed said nothing affirmative at the time, the net result was a two-week bout of USD-strength that lasted through the first half of February. This ran right in to last week’s Humphrey-Hawkins testimony, which first helped to extend that up-trend into resistance after the first day of testimony, only to bring on a reversal on day two; and this further raised questions as to whether the robust bullish up-trend that started after the Presidential Elections might be ready to continue.

The early part of this week has seen price action re-drive up to resistance just ahead of the release of the Fed’s meeting minutes: And this could give the appearance that the USD trend-of-strength is ready for resumption. But by looking at peripheral markets, there may be something else going on here. Given the lack of excitement in USD/JPY and also given the lack of pressure in Gold and Equity prices –we may not be seeing a legitimate ‘rate hike fears’ theme.

In regards to the Dollar specifically, we’re looking at recent price action below as current prices are remaining above the key level of 101.53. This is the 50% Fibonacci retracement of the January move-lower, and should prices pose a sustained break above this level – the prospect of bullish continuation can look considerably more likely. This is also the level that had helped to reverse prices last week, so this only increases the interest behind this level. But just a little-higher on the chart we have another level of relevance at 101.80, as this is the 61.8% retracement of the 16-year move in the Greenback, taking the high from the year 2001 down to the lows of 2008.

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Chart prepared by James Stanley

On the chart below, we’re looking at USD/JPY, as this pair had prominently showed Dollar strength during the ‘Trump Trade’. Also of interest is the fact that the January retracement of that theme showed up a bit more shallow in USD/JPY, as the pair posed an approximate 38.2% retracement while the USD-trend retraced more than 50% of its post-Election gains.

But of particular importance to current price action isn’t what’s happening; it’s what isn’t happening – and that’s a lack of a bullish response despite this move in the Greenback. On the chart below, we’re looking at the 4-hour setup in USD/JPY. The longer-term structure here would still be bullish, but the fact that price action continues to build into a descending wedge while the Greenback tests resistance highlights that, at least so far, this run in the Dollar hasn’t been as driven by rate hike fears.

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Chart prepared by James Stanley

Another market that is not showing rate hike fears at the moment is Gold. We wrote about this two weeks ago in the article, Gold Prices Aren’t Buying the Fed’s Rate Hike Plans, and that theme is pretty much the same as last week. USD strength has continued to show, but Gold prices have just continued to run-higher towards their own resistance level around $1,244.

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Chart prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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DXY Looks to FOMC Minutes for More Evidence of Impending Rate Hike

News events, market reactions, and macro trends.

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Talking Points

- FOMC minutes from February meeting likely to skew more hawkish than policy statement released.

- USD/JPY price action today not indicative of moves across broader USD-spectrum.

- Crowd positioning is turning more bullish EUR/USD - a contrarian signal for more gains by the greenback.

The US Dollar is on strong footing again this morning as lingering political risks in Europe and disappointing data out of the UK have kept the greenback in a favorable light among market participants.

Both 2-year and 10-year Italian-German and French-German yield spreads continue to widen out to the Euro's detriment, highlighting the market's perception that the upcoming slate of elections won't be a walk in the park. Similarly, with the triggering of Article 50 now mere weeks away, the revision lower in the UK's Q4'16 GDP figure has tripped up the British Pound once more.

Yet amid a quiet calendar on the US Dollar's side of the equation, the January 31 to February 1 FOMC meeting minutes stand alone as the significant catalyst for the greenback today. The minutes should reveal a growing yet cautiously hawkish tone among policymakers, in particular thanks to the fact that evidence has started to build up that not only is the economy at "full employment," but that realized and expected inflation pressures are starting to build.

Recall in the policy statement that officials were confident that inflation would rise back to their medium-term target of +2%; since then, we've seen that belief materialize, with the January US CPI report showing both headline and core inflation eclipsing said level. In turn, this may be interpreted by traders as the FOMC having laid out a condition at the beginning of the month to raise rates sooner than previously anticipated, with said condition having been met in the interim period.

Any reaction from the FOMC minutes should be looked at exclusively through the lens of interest rate differentials: if Treasury yields increase post-minutes, the US Dollar should well via EUR/USD; otherwise, given the Japanese Yen's strength today, a drop in US yields could further sink USD/JPY.

See the above video for technical considerations in DXY Index, AUD/USD, EUR/USD, GBP/USD, NZD/USD, USD/CAD, AUD/JPY, NZD/JPY and Crude Oil.

Webinar Schedule for Week of February 19 to 24, 2017

Monday, 7:30 EST/12:30 GMT: FX Week Ahead: Strategy for Major Event Risk

Wednesday, 6:00 EST/11:00 GMT: Trading Q&A

Thursday, 7:30 EST/12:30 GMT: Central Bank Weekly

Read more: DXY Aims for Monthly Highs as Fed March Hike Odds Increase

--- Written by Christopher Vecchio, Senior Currency Strategist

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US Dollar Pulls Back vs. Yield-Sensitive FX as FOMC Minutes Loom

Fundamental analysis, economic and market themes

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Talking Points:

Currency markets have put in a mixed performance heading into Wednesday morning in European trade. The US Dollar is trading lower against particularly rates-sensitive alternatives at both ends of the policy spectrum, with the perennially low-yielding Yen as well as the high-beta Australian and New Zealand Dollars scoring outsized gains.

This is perhaps reflective of pre-positioning ahead of the upcoming release of minutes from February’s FOMC meeting. Steady hawkish comments from central bank officials including Chair Yellen seems to have primed investors for more of the same. Still, cautious profit-taking on near-term USD exposure appears to have taken hold after the greenback managed the highest close in a month yesterday.

Meanwhile, European currencies looked decidedly downbeat. The Euro and the British Pound plunged alongside benchmark German Bund and UK Gilt yields, respectively. This points to eroding ECB and BOE policy supportexpectations, although a discrete catalyst for the pickup in momentum is not readily apparent. The moves began long before the day’s offering of regional economic data began to cross the wires.

The Canadian Dollar likewise declined, tracking crude oil prices. The latter’s turn downward may be corrective after yesterday’s gains on the back of supportive comments from OPEC Secretary General Mohammad Barkindo. Markets may have turned leery ahead of API inventory data that may show swing supply continued to swell last week and may undermine the cartel’s production cut scheme.

Where is the US Dollar going this week? Join a Q&A webinar and ask a DailyFX analyst!

Asia Session

US Dollar Pulls Back vs. Yield-Sensitive FX as FOMC Minutes Loom

European Session

US Dollar Pulls Back vs. Yield-Sensitive FX as FOMC Minutes Loom

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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