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USD/JPY, Gold Price Action Diverging from USD-Strength Theme

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

2017-02-22 14:11:00
James Stanley, Strategist
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Talking Points:

- Minutes from the most recent FOMC meeting will be released to markets at 2:00 PM ET today.

- While Chair Yellen offered more recent commentary as of last week, the results of these meeting minutes could highlight the broader-view within the bank around inflationary pressures.

- 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 (SSI) Indicator.

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Today at 2:00 PM ET, meeting minutes from the most recent FOMC rate decision will be released to markets. This was, of course, a rate decision that produced no actual rate movements; but given the context of being just a month and a half after the second rate hike of the past 10 years, and also given the Fed’s expectation to hike a full three times in the calendar year of 2017 – and considerable focus was paid in attempting to estimate the Fed’s tolerance for near-term rate hikes.

And while the Fed said nothing affirmative at the time, the net result was a two-week bout of USD-strength that lasted through the first half of February. This ran right in to last week’s Humphrey-Hawkins testimony, which first helped to extend that up-trend into resistance after the first day of testimony, only to bring on a reversal on day two; and this further raised questions as to whether the robust bullish up-trend that started after the Presidential Elections might be ready to continue.

The early part of this week has seen price action re-drive up to resistance just ahead of the release of the Fed’s meeting minutes: And this could give the appearance that the USD trend-of-strength is ready for resumption. But by looking at peripheral markets, there may be something else going on here. Given the lack of excitement in USD/JPY and also given the lack of pressure in Gold and Equity prices –we may not be seeing a legitimate ‘rate hike fears’ theme.

In regards to the Dollar specifically, we’re looking at recent price action below as current prices are remaining above the key level of 101.53. This is the 50% Fibonacci retracement of the January move-lower, and should prices pose a sustained break above this level – the prospect of bullish continuation can look considerably more likely. This is also the level that had helped to reverse prices last week, so this only increases the interest behind this level. But just a little-higher on the chart we have another level of relevance at 101.80, as this is the 61.8% retracement of the 16-year move in the Greenback, taking the high from the year 2001 down to the lows of 2008.

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Chart prepared by James Stanley

On the chart below, we’re looking at USD/JPY, as this pair had prominently showed Dollar strength during the ‘Trump Trade’. Also of interest is the fact that the January retracement of that theme showed up a bit more shallow in USD/JPY, as the pair posed an approximate 38.2% retracement while the USD-trend retraced more than 50% of its post-Election gains.

But of particular importance to current price action isn’t what’s happening; it’s what isn’t happening – and that’s a lack of a bullish response despite this move in the Greenback. On the chart below, we’re looking at the 4-hour setup in USD/JPY. The longer-term structure here would still be bullish, but the fact that price action continues to build into a descending wedge while the Greenback tests resistance highlights that, at least so far, this run in the Dollar hasn’t been as driven by rate hike fears.

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Chart prepared by James Stanley

Another market that is not showing rate hike fears at the moment is Gold. We wrote about this two weeks ago in the article, Gold Prices Aren’t Buying the Fed’s Rate Hike Plans, and that theme is pretty much the same as last week. USD strength has continued to show, but Gold prices have just continued to run-higher towards their own resistance level around $1,244.

USD/JPY, Gold Price Action Diverging from USD-Strength Theme

Chart prepared by James Stanley

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

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Contact and follow James on Twitter: @JStanleyFX

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

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