USD/JPY Nears Extension Target, USD/CAD Holds Retest Level
- The US Dollar's gains have continued overnight after stronger data.
- See the May forex seasonality report.
After yesterday's bout of improved US economic data, the US Dollar has found continued support overnight as traders temper their dovish expectations for the Federal Reserve. The rally may only be getting started, as the market remains fairly bearish on the prospect of a rate hike in 2015: the fed funds contract implied probability continues to suggest the first move from the Fed coming in January 2016. Similarly, Q2'15 GDP models - most notably, the Atlanta Fed's GDPNow - are still showing sub-1% growth in the quarter.
As US economic data continues to improve, there is substantial breathing room for the US Dollar to gain as traders reduce their bearish bets and instead take up trades based on rate hike expectations being dragged forward. While pairs with narrow interest rate differentials have been the first to move - notably USDCAD and USDJPY - the US Dollar rally has started to suck the rest of the majors into its vortex, with EURUSD and GBPUSD falling further to start the day.
See the above video for technical considerations in EURUSD, USDJPY, USDCAD, and the USDOLLAR Index.
--- Written by Christopher Vecchio, Currency Strategist
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