Talking Points:
- USD/JPY plummets to fresh yearly lows - but USD up elsewhere.
- Weaker USDOLLAR relative to January insulating US equities.
- As market volatility rises, it's a good time to review risk management principles.
An absence of economic data the next two days leaves the US Dollar more technically driven - that is, if it's able to weather the five Fed speakers due up between Monday and Tuesday. Likewise, with Fed Chair Janet Yellen meeting with US President Barack Obama on Monday afternoon, it's very likely that what should be a more technically driven USDOLLAR Index is indeed influenced by sporadic commentary across the newswires.
With Gold (CFD: XAU/USD) and Silver (CFD: XAG/USD) prices moving higher on the day and making considerable technical progress for establishing longer-term bases, a breakdown in the USDOLLAR Index would be a significant development for risk assets. Likewise, with the Japanese Yen steadying overnight, the weakening USDOLLAR Index - sitting at multi-month support dating back to September 2015 - seems to be the 'key' to unlocking the next leg higher in risk assets.
So far overnight, the dynamic is yielding fruitful results for those carrying higher yielding currencies and/or risk-correlated assets. Progress made in several JPY-crosses suggests that, with a bit more push, a short-term turning point may be near. Both Japanese and European equity markets have made meaningful progress from last week's lows, and a breakdown in the USDOLLAR Index in this context would prove supportive of the US S&P 500 (CFD: SPX500) breaking out of its recent descending channel.
See the above video for trade implications and technical considerations in SPX500, GER30, USD/JPY, GBP/JPY, GBP/JPY, EUR/USD, Gold, Silver, and the USDOLLAR Index.
Read more: EUR/USD Adrift at Sea, Waiting for ECB and Fed Winds to Blow
If you haven't yet, read the Q2'16 Euro Forecast, "EUR/USD Stuck in No-Man’s Land Headed into Q2’16; Don’t Discount ’Brexit’," as well as the rest of all of DailyFX's Q2'16 quarterly forecasts.
--- Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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