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USD/JPY Breakout, Gold Breakdown Gaining Pace as Key Week for USD Begins

USD/JPY Breakout, Gold Breakdown Gaining Pace as Key Week for USD Begins

2017-07-10 11:30:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- USD/JPY and Gold playing catchup to US yield breakout over past three weeks; US 10-year Treasury yield up ~20-bps since mid-June.

- US Dollar sentiment may be at an extreme after a prolonged stretch of everything possible going poorly for the greenback.

- Retail crowd positioning is net-short EUR/USD, GBP/USD, AUD/USD, and USD/JPY - which isn't necessarily a good sign for the greenback.

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After a superficially good, but in reality, an overall mixed June US labor market report on Friday, the US Dollar finds itself posting small gains for the second day in a row as it kicks off an important week.

Through the first half of the year, everything that could go wrong for the greenback seemingly went wrong: no movement on fiscal policy; the market losing faith in the Fed to raise rates; and lackluster economic performance generally. As such, the DXY Index is still near its yearly lows.

This week could mark the beginning of the turnaround for the US Dollar, however. With no expectations for any fiscal stimulus this year, plus a market-implied probability of March 2018 being the next period for a 25-bps rate hike, and US economic data momentum already at a six-year low, how much worse could it get? Not much more, if at all, it would seem.

Looking ahead, the coming days offer key data and commentary that could help spark a broader US Dollar turnaround. Fed Chair Janet Yellen's testimony this week in front of Congressional panels will offer the market fresh perspective on the Fed's thinking. June US Retail Sales and Consumer Price Index data on Friday offer hard data points that could be significant fundamental catalysts for turnaround.

See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD, Crude Oil, and Gold.

Read more: British Pound Slips Despite Higher Yields as Economic Data Weakens

--- Written by Christopher Vecchio, Senior Currency Strategist

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

Follow him on Twitter at @CVecchioFX

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

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