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Risk Rebound Contingent on USD/JPY Rally Continuing

Risk Rebound Contingent on USD/JPY Rally Continuing

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- USDOLLAR Index above daily 34-EMA for first time since March 3.

- USD/JPY trades through ¥108.00 as DAX, Nikkei post rallies.

- Higher volatility in FX markets should have implications for your trading strategies.

With Japanese investors coming back online for the first time in a week, market participants must feel a small sigh of relief that the re-opening of markets didn't mean pent-up panic rising to the forefront. Instead, the week off has calmed the nerves of investors for the time being, with USD/JPY now up nearly +300-pips from last week's low.

It seems that the tentative rebound in risk sentiment - with the Japanese Yen coming off - is tied to the idea that the Federal Reserve won't be able to raise rates in June. Necessarily then, with markets pricing out the possibility of a June rate hike, then investors will turn to the next time when the Fed updates its staff economic projections: September. But why would Yellen & co. want to tip the scales a few weeks before what will be the contentious US presidential elections? It seems unlikely.

Effectively, markets may be turning their sights to December for the Fed's next move. With future liquidity expectations now seemingly more favorable, concerns over the machinations of Japanese financial markets are allowed to take a back seat. In an environment marked by a weaker Yen and rising Crude Oil prices, there's ample room for global equities to rally once more.

See the above video for technical considerations in EUR/USD, USD/JPY, Gold, Silver, Crude Oil, the US S&P500, and the USDOLLAR Index.

Read more: Euro Lacking Direction as Data Momentum Improves, Brexit Concerns Ebb

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

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