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Post-NFP USD/JPY Range Vulnerable to Hawkish Fed Rhetoric

Post-NFP USD/JPY Range Vulnerable to Hawkish Fed Rhetoric

David Song,

Talking Points:

- Post-NFP USD/JPY Range Vulnerable to Hawkish Fed Rhetoric.

- GBP/USD Weakness to Persist as Bearish Sequence Remains Intact.

DailyFX Table
TickerLastHighLowDaily Change (pip)Daily Range (pip)

USD/JPY holds a narrow range following the better-than-expected U.S. Non-Farm Payrolls (NFP) report, but fresh remarks from Fed officials may spark increased volatility in the exchange rate as market participants mull the timing of the next rate-hike.

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New York Fed President William Dudley and Dallas Fed President Robert Kaplan may show a greater willingness to further normalize monetary policy in 2017 as the Federal Open Market Committee (FOMC) ‘expects to begin implementing its balance sheet normalization program relatively soon.’ In turn, a batch of hawkish rhetoric may prop up the dollar-yen exchange rate especially as the Bank of Japan (BoJ) sticks to the Quantitative/Qualitative Easing (QQE) program with Yield-Curve Control.

However, more of the same from the 2017-voting members may dampen the appeal of the greenback as Fed Fund Futures continue to price a 50/50 chance for a 25bp rate-hike in December. As a result, the FOMC may continue to endorse a wait-and-see approach at the next interest rate decision on September 20, with the dollar at risk of facing a more bearish fate over the coming months amid the growing uncertainty surrounding the fiscal outlook.

USD/JPY Daily Chart

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY may continue to consolidate following the string of failed attempts to test the June-low (108.80), with the pair at risk for a near-term rebound as it continues to close above the Fibonacci overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion).
  • Keeping a close eye on the Relative Strength Index (RSI) as it breaks out of the bearish formation carried over from the previous month and appears to be turning around ahead of oversold territory.
  • Need a break/close above the overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) to open the next region of interest around 112.40 (61.8% retracement) to 112.80 (38.2% retracement.
TickerLastHighLowDaily Change (pip)Daily Range (pip)

GBP/USD extends the bearish sequence following the Bank of England’s (BoE) ‘Super Thursday’ event, with the British Pound at risk for further losses as the central bank appears to be in no rush to lift the benchmark interest rate off of the record-low.

Even though U.K. Industrial Production is expected to rebound 0.1% in June, another set of dismal developments may trigger a bearish reaction in GBP/USD as it encourages the BoE to carry the highly accommodative stance into 2018. Even though Governor Mark Carney and Co. note ‘the withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive,’ the majority may stick to the sidelines throughout the remainder of the year as the ‘August projections showed that the economy was expected to operate with a small degree of spare capacity for most of the three-year forecast period, justifying the tolerance of some degree of above-target inflation.’

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD may continue to exhibit a bearish behavior as it carves a series of lower highs & lows after failing to clear the Fibonacci overlap around 1.3300 (100% expansion) to 1.3370 (78.6% expansion).
  • At the same time, the Relative Strength Index (RSI) highlights a bearish trigger as it fails to retain the upward trend from June, with a break/close below 1.2950 (23.6% retracement) opening up the next downside region of interest around 1.2860 (61.8% retracement), which sits above the July-low (1.2812).

Retail FX Sentiment

Retail FX Sentiment

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

  • Retail trader data shows 73.3% of traders are net-long USD/JPY with the ratio of traders long to short at 2.74 to 1. In fact, traders have remained net-long since July 18 when USD/JPY traded near 112.569; price has moved 2.0% lower since then. The number of traders net-long is 1.7% lower than yesterday and 21.1% higher from last week, while the number of traders net-short is 8.6% higher than yesterday and 8.3% lower from last week.
  • Retail trader data shows 44.6% of traders are net-long GBP/USD with the ratio of traders short to long at 1.24 to 1. In fact, traders have remained net-short since June 23 when GBP/USD traded near 1.27733; price has moved 1.6% higher since then. The percentage of traders net-long is now its highest since July 25 when GBP/USD traded near 1.30291. The number of traders net-long is 1.9% higher than yesterday and 10.5% higher from last week, while the number of traders net-short is 13.3% lower than yesterday and 16.6% lower from last week.
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--- Written by David Song, Currency Analyst

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

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