FX TALKING POINTS:

  • USD/JPY Holds Narrow Range Even as Chairman Powell Endorses Hiking-Cycle. More Fed Rhetoric on Tap.
  • AUD/USD Tumbles to Fresh 2018-Lows, Relative Strength Index (RSI) Dips Back Into Oversold Territory Following Dismal Australia Retail Sales Report.
Image of daily change in major currencies

The U.S. dollar continues to gain ground against most of its major counterparts as there appears to be little in the way to deter the Federal Open Market Committee (FOMC) from further normalizing monetary policy over the coming months. However, the USD/JPY rate bucks the recent trend as it holds a narrow range, with dollar-yen at risk of exhibiting a more bearish behavior as the rebound from the 2018-low (104.63) appears to have run its course.

USD/JPY HOLDS NARROW RANGE EVEN AS CHAIRMAN POWELL ENDORSES HIKING-CYCLE

Image of daily change in USDJPY

Unlike its major counterparts, USD/JPY holds a narrow range following fresh remarks from Fed Chairman Jerome Powell, with the pair at risk of tracking sideways ahead of the key data prints due out later this week as the bullish momentum unravels.

Image of Fed Fund Futures

Comments from Chairman Powell suggest the FOMC will continue to implement higher borrowing-costs this year as ‘market participants’ expectations for policy seem reasonably well aligned with policymakers’ expectations,’ but the committee appears to be in no rush to expand the hiking-cycle as the central bank head warns ‘risk sentiment will bear close watching as normalization proceeds around the world.

With that said, Atlanta Fed President Raphael Bostic and Cleveland Fed President Loretta Mester, both voting-members on the FOMC this year, may also strike a balanced tone, and the remarks may do little to boost bets for four rate-hikes as the central bank pledges to tolerate above-target inflation for the foreseeable future.

USD/JPY DAILY CHART

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  • USD/JPY appears to be making another failed attempts to break/close above the 109.40 (50% retracement) to 110.00 (78.6% expansion) region, with the pair at risk for further losses as the Relative Strength Index (RSI) snaps the bullish formation carried over from the previous month.
  • May see a larger decline unfold once price displays a similar dynamic, with a break/close below the 108.30 (61.8% retracement) to 108.40 (100% expansion) area bringing the downside targets back on the radar.
  • First downside hurdle comes in around 106.70 (38.2% retracement) to 107.20 (61.8% retracement) followed by the 105.40 (50% retracement) region.

For more in-depth analysis, check out the Q2 Forecast for USD/JPY

AUD/USD TUMBLES TO FRESH 2018-LOWS, RELATIVE STRENGTH INDEX (RSI) DIPS BACK INTO OVERSOLD TERRITORY FOLLOWING DISMAL AUSTRALIA RETAIL SALES REPORT

Image of daily change in AUDUSD

AUD/USD extends the decline fueled by the larger-than-expected slowdown in Australia Retail Sales, and the pair now stands at risk of making a run at the 2017-low (0.7329) as the bearish momentum from earlier this year appears to be reasserting itself.

The slowdown in private-sector consumption is likely to keep the Reserve Bank of Australia (RBA) on the sidelines as it instills a weakened outlook for growth and inflation, and Governor Philip Lowe & Co. may continue tame expectations for an imminent rate-hike as ‘household income has been growing slowly and debt levels are high.

With that said, the RBA may stick to the current script at the next meeting on June 5, and the AUD/USD rate stands at risk of extending the decline from the previous month as both price and the Relative Strength Index (RSI) preserve the bearish formations from earlier this year.

AUD/USD DAILY CHART

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  • The break/close below the 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion) region brings the downside targets back on the radar for AUD/USD especially as the RSI dips back into oversold territory.
  • Next region of interest comes in around 0.7340 (61.8% retracement), which largely lines up with the 2017-low (0.7329), followed by the Fibonacci overlap around 0.7090 (78.6% retracement) to 0.7180 (61.8% retracement).

For more in-depth analysis, check out the Q2 Forecast for the U.S. Dollar

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--- Written by David Song, Currency Analyst

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