News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • RT @FxWestwater: Australian Dollar Forecast: Evergrande, PBOC, Risk Trends, BoJ on the Radar Link: https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2021/09/21/Australian-Dollar-Forecast-Evergrande-PBOC-Risk-Trends-BoJ-on-the-Radar.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https://t.co/L0…
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9FlspUVZz https://t.co/9FeeIfuozg
  • The Bank of England should scrap the last of its quantitative easing plans and start preparing for an increase in interest rates. All 9 members of the shadow monetary policy committee said the Bank should end the QE programme early, with almost £50bln left - The Times
  • The Nasdaq 100 gains modestly after Monday's sharp losses, but sentiment remains cautious ahead of the FOMC rate decision. Get your market update from @Tams707 here:https://t.co/HLDN2JGfAf https://t.co/mRhlLUBGq6
  • Ethereum continues its sharp slide, currently down more than 4.7% on the day $ETHUSD #Ethereum https://t.co/BoTAiljU0y
  • Rising energy prices weigh on European policymakers as consumers fear higher prices, carbon dioxide shortages (CO2), and cold winter. Get your market update from @Tams707 here:https://t.co/HLDN2JGfAf https://t.co/tWhlMrXN4G
  • US President Biden: - Will discuss a trade deal with UK PM Boris Johnson - I do not want to see a closure of Irish borders
  • AUD/USD continues to trend lower ahead of tomorrow's FOMC meeting. Further $USD strength could bring the August low into play $AUDUSD https://t.co/X3zfpYN8Qe
  • Nasdaq Ekes Out Small Gain As Focus Turns to FOMC, Uber Flies On Bullish Guidance $NDX $UBER #trading #FED https://t.co/1uL1Ao3o3v
  • Fedex Q1 Results: Revenues: $22.0B vs. $21.8B est. EPS $4.37 vs. $4.92 est. $FDX down roughly 2.25% AH
Gold, Japanese Yen Fall While US Dollar Stabilizes Ahead of FOMC

Gold, Japanese Yen Fall While US Dollar Stabilizes Ahead of FOMC

Christopher Vecchio, CFA, Senior Strategist

Fundamental Headlines

- Americans Say They’re Better Off Since Obama Took Office – Bloomberg

- Statement by IMF Managing Director on G20 Leaders Summit – IMF

- Greece Reaches Deal to Form Government – WSJ

- The Same Song and Dance for the Fed – WSJ

- Forget EURIBOR and Basis-Swaps; EUREPO Curve Signals Funding Stress – Zero Hedge

Asian/European Session Summary

Since June 1, when the Nonfarm Payrolls report for May was released, the US Dollar has been under immense pressure. The dismal labor market reading for the United States showed that jobs growth has somewhat stalled, and since then, market participants have been actively betting that the Federal Reserve will introduce another major easing package to help usher along what has been an overall sluggish recovery.

Certainly, in the past few days, the expectation of more accommodative policy has surged. The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR), after peaking on June 1 at 10312.73, has shed as much as 2.78 percent, falling as low as 10026.23 yesterday, the index’s lowest reading since May 15. In the past five days alone, since rumors emerged that the G20 was considering a globally coordinated intervention to help calm markets should the Greek elections yield an unfavorable result, the Dollar Index has dropped by as much as 1.53 percent. It’s fairly evident that the threat of more easing, an ultimately fiat-dilutive measure, as hurt the US Dollar’s prospects.

Today, however, it appears that market participants are signing a different tune, given the performance of Gold and the Japanese Yen, the two alternative safe havens to the US Dollar when the Fed is expected to or actually implements a more accommodative monetary policy. Gold has fallen by 0.67 percent and is now 1.60 percent off of its weekly high while the Japanese Yen has pared 0.45 percent against the US Dollar. Perhaps these are the ‘canaries in the coal mine’ for the rate decision today: if another major easing package was expected, the US Dollar would be selling off across the board while Gold and the Japanese Yen would be posting moderate gains. Our outlook for the meeting fits neatly with these analyses.

Later today, Chairman Ben Bernanke will release the Fed’s revised economic projections as well as hold his quarterly press conference. Calls have been high for a QE3 package, especially among the Fed’s more dovish members such as Charles Evans (who last week stated that he would support any form of more accommodation), but it’s important to note that the Fed voting bloc has been a bit more conservative lately.

At his Congressional testimony a few weeks ago, Chairman Bernanke made it clear that the Fed would not fill the void created by the US’ irresponsible fiscal policy, and that the Fed could only do so much to achieve its dual mandate of price stability (with inflation near 2%) and maximum employment. Accordingly, we do not expect a full-blown QE3 package; but instead, we expect, at most, that the FOMC will announce an extension of Operation Twist. Similar to how markets reacted in September when Twist was announced, this could lead to a major US Dollar rally.

USDJPY 5-min Chart: June 20, 2012

Gold_Japanese_Yen_Fall_While_US_Dollar_Stabilizes_Ahead_of_FOMC_body_Picture_1.png, Gold, Japanese Yen Fall While US Dollar Stabilizes Ahead of FOMC

Charts Created using Marketscope – Prepared by Christopher Vecchio

The Japanese Yen is the worst performer on the day, with the USDJPY appreciating by 0.45 percent thus far on Wednesday. The British Pound, despite the Bank of England’s dovish minutes, is the top performer, gaining 0.11 percent against the US Dollar. The EURUSD is barely higher on the day, up 0.11 percent, while the Australian Dollar is unchanged against the US Dollar.

24-Hour Price Action

Gold_Japanese_Yen_Fall_While_US_Dollar_Stabilizes_Ahead_of_FOMC_body_Picture_2.png, Gold, Japanese Yen Fall While US Dollar Stabilizes Ahead of FOMCGold_Japanese_Yen_Fall_While_US_Dollar_Stabilizes_Ahead_of_FOMC_body_Picture_8.png, Gold, Japanese Yen Fall While US Dollar Stabilizes Ahead of FOMC

Key Levels: 13:30 GMT

Gold_Japanese_Yen_Fall_While_US_Dollar_Stabilizes_Ahead_of_FOMC_body_Picture_5.png, Gold, Japanese Yen Fall While US Dollar Stabilizes Ahead of FOMC

Thus far, on Wednesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading higher, at 10050.51 at the time this report was written, after opening at 10043.48. The index has traded mostly sideways, with the high at 10058.27 and the low at 10026.37.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES