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USD/JPY Eyes May High Amid Growing Bets for December Fed Rate-Hike

USD/JPY Eyes May High Amid Growing Bets for December Fed Rate-Hike

David Song, Strategist

Talking Points:

- Canadian Dollar Resilience to Persist Ahead of Employment Report.

- USD/JPY Eyes May High Ahead of FOMC Minutes Amid Growing Bets for December Rate-Hike.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.3001

1.3007

1.2965

33

42

The near-term strength in the Canadian dollar may persist over the coming days as the region’s employment report is expected to show the economy adding another 11.3K jobs in June.

A further improvement in labor market dynamics is likely to heighten the appeal of the loonie as it boosts the outlook for growth and encourages the Bank of Canada (BoC) to lift the benchmark interest rate off of the record-low. Recent comments from Governor Stephen Poloz suggest the central bank is more inclined to move away from its easing-cycle as the rate cuts from 2015 ‘have done their job,’ and BoC may gradually alter the monetary policy outlook over the coming months especially as the ‘the Canadian economy’s adjustment to lower oil prices is largely complete.’

With that said, a major shift in market behavior appears to be underway as USD/CAD snaps the upward trend from 2016 and takes out the lows from earlier this year.

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • USD/CAD stands at risk for a further declined as it continues to carve a series of lower-highs, while the Relative Strength Index (RSI) preserves the downward trend from May and trades in oversold territory; another close below the 1.2970 (61.8% retracement) hurdle may open up the next downside target around 1.2890 (161.8% expansion) followed by the Fibonacci overlap around 1.2750 (78.6% retracement) to 1.2770 (38.2% expansion).
  • However, the inside-day (harami) formation may point to a round of short-covering, with the dollar-loonie exchange rate at risk of facing range-bound conditions during the major U.S. holiday; need to see the RSI push above 30 and clear the bearish formation to look for a near-term recovery in USD/CAD.

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Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

113.34

113.46

111.91

114

155

The Japanese Yen continues to weaken against its major counterparts, with USD/JPY at risk for a further advance as the string of better-than-expected data prints coming out of the U.S. economy lift interest-rate expectations.

The dollar-yen exchange rate appears to be on course to test the May-high (114.37) with Fed Fund Futures now showing a greater than 60% probability for a December rate-hike. The Federal Open Market Committee (FOMC) Minutes may reinforce expectations for higher borrowing-costs as Chair Janet Yellen & Co. remain confident in achieving the 2% inflation-target over the policy horizon, and the fresh remarks may spark a bullish reaction in the greenback should the committee show a greater willingness to start unloading the balance sheet over the coming months.

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Topside targets remain in focus as USD/JPY breaks out of the previous week’s range, with a close above the 112.80 (38.2% expansion) hurdle opening up the next region of interest around 113.80 (23.6% expansion) to 114.30 (23.6% retracement), which largely lines up with the May-high (114.37).
  • Will a close eye on the Relative Strength Index (RSI) as it extends the bullish formation from the previous month and approaches overbought territory; a break above 70 may be accompanied by fresh 2017-highs in USD/JPY as the bullish momentum gathers pace.

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas.

IG Sentiment

Check Out the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 76.7% of traders are net-long USD/CAD with the ratio of traders long to short at 3.29 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.34947; price has moved 3.7% lower since then. The number of traders net-long is 16.3% higher than yesterday and 36.7% higher from last week, while the number of traders net-short is 10.4% higher than yesterday and 29.0% lower from last week.
  • Retail trader data shows 54.3% of traders are net-long USD/JPY with the ratio of traders long to short at 1.19 to 1. In fact, traders have remained net-long since May 17 when USD/JPY traded near 114.31; price has moved 0.8% lower since then. The number of traders net-long is 1.4% lower than yesterday and 20.0% lower from last week, while the number of traders net-short is 13.6% higher than yesterday and 6.0% higher from last week.
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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

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