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USD Steady Ahead of FOMC Tomorrow; AUD/JPY, CAD/JPY Longs Primed

USD Steady Ahead of FOMC Tomorrow; AUD/JPY, CAD/JPY Longs Primed

2017-07-25 11:34:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- DXY Index continues to tread water around August 2016 swing lows; EUR/USD capped below August 2015 high.

- If USD/JPY stabilizes and US yields move back up, Gold probably won't rally more; look to AUD/JPY and CAD/JPY for opportunities.

- See our Q3'17 forecasts for the British Pound, Euro, US Dollar, and more.

Upcoming Webinars for Week of July 23 to July 28, 2017

Tuesday at 09:45 EDT/13:45 GMT: Live Event Coverage:US Consumer Confidence (JUL)

Wednesday at 6:00 EDT/10:00 GMT: Weekly Trading Q&A

Thursday at 07:30 EDT/11:30 GMT: Central Bank Weekly

FX markets are calming down as the volatility-draining tractor beam that is the 24-hour period ahead of a FOMC rate decision fast approaches. The US Dollar (via the DXY Index) has stabilized after its recent selloff carried it to new lows for 2017, with support materializing around its August 2015 lows.

With the FOMC rate decision fast approaching, there are very few data or events that might stir volatility. While it is considered a ‘high’ rated event, the July US Consumer Confidence reading this morning probably the least important ‘high’ rated event on the calendar this week. There has been a longstanding disconnect between sentiment readings and real economic activity, so the data will probably be overlooked if not dismissed by the market.

Although US equity markets are near all-time highs, consistent acrimony in Washington D.C. has probably started to erode otherwise stellar confidence readings (which themselves are near their highest levels since 2000). Regardless of the actual results, the proximity of the release of the confidence report to the FOMC rate decision more or less nullifies its ability to have a significant market impact.

Over the next few days, the canary in the coal mine for FX markets may be USD/JPY. USD/JPY has proven to be highly sensitive to shifts in US yields, given that the Bank of Japan is pegging rates near zero percent. US Treasury yields topped on July 11, the same day as USD/JPY; now that they've rebounded the past two days, USD/JPY's decline has been halted.

Given the broader US Dollar weakness, turn higher in USD/JPY alongside US yields the next few days mean that not only will Gold struggle to break higher, but also that other JPY-crosses may experience gains as well. Certainly, there are JPY-crosses better positioned for gains than USD/JPY at present time; AUD/JPY and CAD/JPY immediately come to mind.

See the above video for a technical review AUD/JPY and CAD/JPY and why longs may be primed in both pairs this week, as well as of the DXY Index, EUR/USD, GBP/USD, USD/JPY, Gold, Crude Oil, and US yields.

Read more: FX Markets Turn to UK & US GDP Data, FOMC Rate Decision

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail

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