Talking Points:

- USD/JPY June Rally Unravels as Fed Chair Yellen Tames Rate Expectations.

- EUR/USD Retains Bullish Sequence Ahead of U.S. PPI, CPI Reports.

- Q3 Forecasts have just been released and are available in our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

113.32

113.97

112.93

62

104

USD/JPY may continue to give back the rebound from the June-low (108.80) especially as U.S. Treasury yields come under pressure following the Humphrey-Hawkins testimony.

The U.S. 10-Year yield dipped below 2.30% as Fed Chair Janet Yellen relayed a cautious outlook to the House Financial Services Committee, with the greenback at risk of facing near-term headwinds as the central bank head warns ‘the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.’ Moreover, the prepared remarks noted that ‘because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance,’ and Fed officials may continue to forecast a terminal Fed Funds rate close to 3.00% as inflation continues to run below the 2% target.

In turn, Fed Fund Futures are now showing a 50/50 chance for December rate-hike, and the dollar-yen exchange may face a more bearish fate over the days as the fresh remarks from Chair Yellen drag on interest-rate expectations.

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Despite the break of the May-high (114.37), the lack of momentum to close above the above the 112.80 (38.2% expansion) hurdle may generate a larger pullback in USD/JPY as it starts to carve a bearish sequence; keeping a close eye on the Relative Strength Index (RSI) as it comes off of overbought territory and quickly approaches trendline support.
  • A bearish RSI trigger accompanied by a break/close below the Fibonacci overlap around 112.40 (61.8% retracement) to 112.80 (38.2% expansion) may open up the next downside hurdle around 111.10 (61.8% expansion) to 111.60 (38.2% retracement).

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.1416

1.1489

1.1392

51

97

Unlike the Japanese Yen, the Euro struggles to hold its ground, with EUR/USD pulling back from a fresh 2017-high (1.1490).

Mixed rhetoric from European Central Bank (ECB) officials may temper the resilience in the euro-dollar exchange rate as Governing Council member Ignazio Viscoargues monetary policy needs to stay ‘expansive,’ while Benoit Coeure warns ‘the Governing Council will continue to adjust its instruments both qualitatively and quantitatively’ as the central bank raises its euro-area growth forecast. In turn, EUR/USD remains at risk of facing a near-term correction ahead of the next ECB meeting on July 20, but the shift in market behavior may continue to unfold in the second-half of 2017 as the central bank appears to be approaching the end of its easing-cycle.

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Near-term outlook remains constructive as EUR/USD continues to come off of the monthly-low (1.1312), with both price and the Relative Strength Index (RSI) preserving the bullish formations from earlier this year; would need a break below the 1.1290 (38.2% expansion) region to favor a larger correction.
  • EUR/USD may extend the recent series of higher highs & lows as it clears the June-high (1.1446); need a close above the 1.1480 (78.6% expansion) hurdle to open up the next region of interest coming in around 1.1580 (100% expansion).
IG Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 49.4% of traders are net-long USD/JPY with the ratio of traders short to long at 1.02 to 1. The number of traders net-long is 13.8% lower than yesterday and 19.9% lower from last week, while the number of traders net-short is 18.0% lower than yesterday and 8.7% lower from last week.
  • Retail trader data shows 29.7% of traders are net-long EUR/USD with the ratio of traders short to long at 2.37 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06683; price has moved 7.0% higher since then. The number of traders net-long is 2.7% higher than yesterday and 0.9% higher from last week, while the number of traders net-short is 12.7% lower than yesterday and 6.1% lower 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.

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