Fed Slams The Dollar | AUD/USD, USD/JPY

Dovish comments from Fed officials has put a 50bps cut in July back onto the table for markets, and markets were quick to respond.

Dovish comments from Fed officials has put a 50bps cut in July back onto the table for markets, and markets were quick to respond.

  • Fed’s William’s said current estimates of the US neutral interest rates are around 0.5% and, if inflation gets stuck below goal, people’s expectations may push inflation lower, “reducing the Fed’s ability to be effective”.
  • Richard Clarinda, who was mostly ‘centrist’ at the June meeting, said during a live TV interview that “you don’t want to wait until data turns decisively” and “it’s important to act pre-emptively.

That these comments were said on Donald Trump’s favourite Fox News program, ‘Fox and Friends’ is also worth noting, given the Fed have been accused of bowing to the President’s pressure and therefor, not as independent as they claim. Still, what’s said is said and markets reacted accordingly.

  • USD index closed to a 2-week low amid its most bearish session in 1-month
  • Gold broke to a fresh, 6-year high (nice call Fawad)
  • AUD/USD hit a 3-month high
  • US2yr fell to 1.76%, a 9-day low and now far from its YTD lows
  • OIS markets are now pricing in a 76% chance of a 50bps cut this month, whilst CME’s FedWatch tool suggests a relatively modest 44.2%.

Starting with AUD/USD, it’s most bullish day since late January closed right on the December ’18 bearish trendline.

  • A higher high and low has materialised since the 2016 low, which could be part of an inverted head and shoulders pattern.
  • If successful, the pattern projects an approximate target around 0.727, although the 0.7200 area makes a logical interim target
  • However, the 200-day MA and eMA are nearby, so we’d want to see a clear break above 0.7100 before assuming a bullish reversal

USD/JPY looks set to re-test its lows and potentially extend its bearish trend now bearish momentum has returned.

  • The 109.02 resistance level previously highlighted has continued to be a good level to fade into, with the 50-day eMA capping as resistance
  • Intraday traders could look for shorts below the 107.54 area (but expect some noise around this level heading into the weekend)
  • The daily structure remains bearish below 109.02, but we could consider fading into moves on the daily chart below 108.38
  • Next target is 106.78 but the bias is for a break to new lows

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account