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US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

Christopher Vecchio, CFA, Senior Strategist


The USDJPY imploded overnight, slipping by over one percent and testing prices under ¥100.00, as the continued streak of improved Japanese data has investors reconsidering their stance on the Bank of Japan. Volatility in the USDJPY couldn’t be more appropriate, given what’s due ahead on the economic docket into the end of the week.

Later today, the Fed’s June 18 to 19 meeting Minutes will be released, which will only be market moving insofar as there is a vocal minority apparent – one that seeks to extend QE3 or one that seeks to taper immediately. While the Minutes would normally garner more attention, the big Fed event on the day is Chairman Bernanke’s speech in Boston on economic policy shortly after the closing bell. The speech is entitled “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future,” meaning there is scope for discussion on future policy.

Considering that Fed officials have been on the defensive since the June FOMC meeting – and the chairman himself has yet to opine – it wouldn’t be surprising to hear Chairman Bernanke utilize dovish rhetoric, if only to serve as a counterweight to the recent uptick in borrowing costs. With the Fed set to balance its tone, the BoJ on Thursday will provide the ammunition to see the USDJPY selloff into the end of the week as long as a hold prevails. This may be the last BoJ meeting marked by inaction, as the Japanese diet elections over the coming days will cement power with the pro-easing/Abenomics camp, which should pave the way for more accommodative policies in the fall.

Read more: June NFPs Support Taper Case, US Dollar – Light Data Week Ahead

Taking a look at European credit, weaker peripheral credit has fueled the EURJPY selloff, although pressure on the Euro is quite limited. The Italian 2-year note yield has increased to 1.580% (+5.7-bps) while the Spanish 2-year note yield has increased to 2.008% (+9.4-bps). Similarly, the Italian 10-year note yield has increased to 4.469% (+6.2-bps) while the Spanish 10-year note yield has increased to 4.815% (+9.7-bps); higher yields imply lower prices.


JPY: +1.11%

AUD: +0.49%

CHF: +0.38%





Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.47% (+0.57%prior 5-days)


US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_Picture_1.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

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US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_x0000_i1028.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

EURUSD: No change as price flirts with a H&S breakdown:“Risk should be contained to the June 25 high at $1.3150, looking for a break below 1.2970 to yield a move towards 1.2770/800.” 1.2807 printed to the downside before price rebounded this week, and the rejection of the 76.4% Fibonacci retracement at 1.2902 (price fell short at 1.2897 today) suggests that selling pressure remains strong. A close below 1.2800 tentatively triggers the broader Head & Shoulders pattern, whose measured move points to a return to the June 2010 lows near 1.1875.

US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_x0000_i1029.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

USDJPY: No change from Tuesday: “The rejection of the 76.4% Fib retracement at ¥101.35/40 (May high to June low) is only a near-term setback, as the break off of the late-May to mid-June correction in the pair completed the last week of June. Furthermore, a run to RSI resistance should be accompanied by price accompanying higher towards 102.40/60. Looking to buy dips as long as 99.00/25 is held.”

US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_x0000_i1030.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

GBPUSD: No change: “Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200. Any rallies in the pair look to be sold; price could climb to 1.5290 (50% Fib March low to May high) on a rebound now that the GBPUSD has broken through RSI trend support off of the March 12 and May 29 lows. Price has undercut key Bear Flag support off of the March 12 and May 29 lows; and now the move towards 1.4200 appears to have begun.”

US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_x0000_i1031.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie. Bullish divergence on the daily chart has formed once more, suggesting that consolidation or perhaps a small rally back towards 0.9330/420 is due; or another quick, sharp drop is necessary to clear the technical discrepancy.”

US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_x0000_i1032.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

S&P 500: No change: “A brief reprieve at 1635/40 (23.6% Fib Feb low May high, 61.8% Fib May high June low [blue line]) proved only a near-term stumbling block, and now price finds itself on its way towards mid-June swing highs and the 76.4% Fib retracement (May high June low) at 1655/60.”

US_Dollar_Retreats_Ahead_of_Bernanke_USDJPY_Set_to_Break_100_body_x0000_i1033.png, US Dollar Retreats Ahead of Bernanke; USD/JPY Set to Break ¥100

GOLD: No change “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192. It should be noted that the rally off of Friday’s low has produced a maximum of +7.36% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.”

--- Written by Christopher Vecchio, Currency Analyst

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