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FOMC Lifts USD As Fed Looks Through Soft Data, NFP Set To Drive USD

FOMC Lifts USD As Fed Looks Through Soft Data, NFP Set To Drive USD

2017-05-03 22:00:00
Tyler Yell, CMT, Currency Strategist
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Want to know what our analysts think about USD? You may enjoy our FREE Dollar Forecast.

Talking Points:

  • US economic slowdown seen as transitory by FOMC, USD supported
  • JPY bears losing ground as USD/JPY trades at 61.8% of March-April range
  • Metals sell-off continues as silver sees 12th straight down day, worst slump since 2001

On Wednesday afternoon, the USD firmed up after the FOMC decision that informed markets that the Fed is looking through the soft data and seeing it as “transitory.” Second, the Fed noted in the statement where rates remained unchanged that they still expect to move forward later in the year with reinvesting the balance sheet, which is synonymous with shrinking their balance sheet, which ballooned through multiple QE attempts. USD strength was best seen vs. the Japanese Yen and other higher yielding currencies like the AUD, which fell 1.5%.

JPY weakness remains a theme worth watching as Japan provides no liquidity due to the Golden Week holiday that has markets closed. USD/JPY is catching the eye of technical traders as the daily chart shows a price move above the Daily Ichimoku Cloud as well the 61.8% retracement of the March-April range. USD/JPY is positively correlated with higher US Yields, which was the FOMC result of the rates market after the Fed statement kept the probability of a June rate hike high.

Lastly, the commodities sell-off continues as evidenced most clearly through silver and gold. Silver worked on its 12th day lower. The 12 down days makes this current bear run in silver the worst since 2001. Similarly, Crude Oil and Copper were sold on the day. Crude Oil traded near a six-week low as US production is at the highest levels since August 2015 and similarly high copper inventories saw copper drop by over 3.5% intraday.

Join Tyler in his daily webinar, FX Closing Bell at 3 pm ET to discuss market developments.

Would you like to see what our Analysts Forecast for JPY longer-term? Find out here!

Closing Bell’s Top Chart: May 3, 2017, EUR/JPY pushes through confluence of resistance

FOMC Lifts USD As Fed Looks Through Soft Data, NFP Set To Drive USD

Tomorrow’s Main Event: Central Bank leaders Draghi, Poloz, & Lowe

Thursday provides three central bankers speaking across the globe. First, we will hear from RBA Governor Lowe. He will be speaking on Household Debt, Housing Prices & Resilience in Brisbane. Next, Mario Draghi (ECB) speaks in Lausanne, Switzerland. Lastly, Bank of Canada Governor Stephen Poloz will speak in Mexico City. All central bankers will be looked to provide hints about changes in monetary policy though Lowe appears to be the only one with the platform to surprise the markets.

IG Trader Sentiment Highlight:EUR/JPY sellers fight despite losing 122

FOMC Lifts USD As Fed Looks Through Soft Data, NFP Set To Drive USD

EURJPY: As of May 3, retail trader data shows 30.6% of traders are net-long with the ratio of traders short to long at 2.27 to 1. The number of traders net-long is 7.0% lower than yesterday and 36.4% lower from last week, while the number of traders net-short is 12.3% lower than yesterday and 67.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURJPY prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURJPY trading bias. (Emphasis Mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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