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Talking Points:

- The remainder of the week brings a heavy economic calendar to global markets, with the Fed (tomorrow), the Bank of England (Thursday) and Non-Farm Payrolls (Friday).

- Many prior trends have tightened-up ahead of this run of data, with the U.S. Dollar, USD/JPY and GBP/USD all running down to interesting support zones, investigated below.

- If you’re looking for trading ideas, check out our Trading Guides. And if you’re looking for ideas that are more short-term in nature, please check out our Speculative Sentiment Index Indicator (SSI).

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Dollar Runs Back Down to Support as Two-Day Fed Meeting Begins

The Federal Reserve’s two-day meeting begins today, with the statement and press conference communicated tomorrow at 2:00 PM and 2:30 PM ET, respectively. And with markets holding little hope for any actual moves at tomorrow’s announcement, the U.S. Dollar has run back down to the widely-trafficked zone of support around the 100-level on DXY. We had focused-in on this zone of support on Friday of last week, in the effort of looking at continuation prospects in the U.S. Dollar; and on the chart below we look at the updated version of this setup as the Dollar has run down for another test around the 100-level.

USD, Cable, USD/JPY Run to Support Ahead of Fed, BoE, NFP

Chart prepared by James Stanley

BoJ Holds

We discussed the BoJ’s stance in last week’s trading forecast and, as expected the BoJ made no moves at last night’s policy meeting. The BoJ is really in a position of benefit at the moment as the post-Election rally that developed around-the-world drove a considerable amount of Yen-weakness into the mix, and this comes at a crucial time for the Bank of Japan. The BoJ spent almost four years weakening the Yen with outsized-QE efforts, only to watch a large portion of that come undone as Chinese markets began to implode in the latter portion of 2015. And after spending much of the first half of last year strengthening, undoing years of Japanese QE efforts, the BoJ was looking at the very real prospect of being in an untenable situation. The BoJ had gotten to a point that many considered desperation, as indicated by their surprising move to negative rates one year ago; which, while designed to illicit even more weakness in the currency actually ended up bringing on strength.

The respite for the BoJ finally came in the form of Donald Trump, and the Yen ran with considerable weakness in the wake of the U.S. Presidential election. Matters had worked so well, so quickly that some began to imagine that the BoJ might actually begin looking at tightening policy options, albeit slightly, to account for this newfound hope for economic strength in the Japanese economy.

For its part, USD/JPY has held up a bit better than general USD trends have during this recent bout of consolidation. While the U.S. Dollar chart we looked at above is currently seeing support at the 50% retracement of the post-Election move, USD/JPY has remained above the 38.2% retracement of its own post-Election move. With two tests of support at the ¥112.50 psychological level, just a bit above a confluent zone of support with three different Fibonacci levels within an 80-pip range, we can see where buyers are showing a bit more excitement here than what we were seeing before in DXY/the U.S. Dollar.

USD, Cable, USD/JPY Run to Support Ahead of Fed, BoE, NFP

Chart prepared by James Stanley

British Pound Runs Down to Find Support at Old Resistance

The British Pound came back to life over the past couple of weeks as the world finally received a bit of clarity around upcoming Brexit proceedings. After running down below 1.2000 just two weeks ago, GBP/USD rallied up-past the 1.2650 area towards the end of last week. But since then, we’ve seen that move-higher begin to retrace, and this has brought price action in GBP/USD to a very interesting support inflection at around 1.2411-1.2418. The 38.2% retracement of the most recent move-higher shows up at 1.2411, and this is where support has shown up so far this morning. This is very near the 38.2% retracement of the move-lower, from the September 22nd high down to the low two weeks ago. But perhaps most importantly, this level has produced numerous resistance and then support inflections in the recent past.

For those looking for ways to trade USD-weakness around the Fed tomorrow and then GBP-strength for the Bank of England’s Super Thursday the day after, this could be a very interesting zone of support to watch for continuation potential of that bullish up-trend.

USD, Cable, USD/JPY Run to Support Ahead of Fed, BoE, NFP

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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