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Yen Strength Waxing, Dollar Strength Waning, SPX Awaits Judgement

Yen Strength Waxing, Dollar Strength Waning, SPX Awaits Judgement

2016-07-30 00:28:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Where the FOMC offered little guidance for rate speculation, the weak US 2Q GDP figures undermined rates and USD
  • The BoJ rate decision generated remarkable anticipation and volatility, but its long-term outcome may spur JPY trend
  • While NFPs and the RBA decision are high profile risk next week, top listing goes to the BoE rate decision

See how retail traders are positioning in the majors using the SSI readings on DailyFX's sentiment page. Having trouble trading in the FX markets? This may be why.

From a docket of monumental event risk this past week, we ended up seeing the true impact through Friday. These moves were motivated by key events (BoJ and US GDP), but their momentum and conviction originate in their underlying theme. For the Dollar, the Fed rate decision offered little for speculators to grab ahold of; but the US 2Q GDP figure more than made up for it. A restrained pace of growth not only curbs rate speculation, it also diminishes the appeal of US assets for safety and yield purposes. While the Greenback's nascent rise has been bridled, it isn't set to free fall. Technicals and the upcoming NFPs will have a lot of sway over the currency moving forward.

Similarly, the Japanese Yen has seen a significant shift in fundamental value, though the seemingly bullish wind change doesn't arise from particularly optimistic circumstances. The BoJ's announcement of additional policy measures this past week fell well-short of the market's unreasonable expectations - given the extremes in global monetary policy, there has long been evidence of a diminishing return whether targeting currency influence, capital market gains or economic objectives. If sentiment sours moving forward, the confluence of pressure could provide significant tailwind to the Yen.

In the week ahead, the underlying themes of risk trends and effective/ineffective monetary policy will play key roles in shaping larger trends. From Dollar to Yen to S&P 500, the crucial fundamental current is gaining power - with or without event risk to stoke it. In additional to the big-picture, traders should prepare for the important, discrete event risk. The labor and inflation (PCE) figures from the US can revive rate speculation and generate volatility. The RBA rate decision comes equipped with significant speculation of a rate cut. Top event risk is the BoE rate decision and Quarterly Inflation report however. With so much influence over the perception of Brexit-value on the Sterling, this single event could spur both a sharp, short-term reaction as well as a lasting trend. We discuss these important currencies, themes and events in this weekend Trading Video.

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