The US dollar continued its ascent ahead of Jerome Powell’s speech on Friday, this time helped lower by the Fed minutes and revised employment figures. The BLS downwardly revised payrolls by the second largest level since the GFC, and the Fed minutes revealed that the ‘vast majority’ of members think a September cut as appropriate. Again, this isn’t really new news, given markets have been pricing in a September Fed cut for several months now. Which makes it old news. Although if the Fed are finally acknowledging what markets have already been expecting, it increases the odds for three cuts this year and lower rates in 2025.
- EUR/USD broke above the December high to close above 1.11 at a 13-month high
- GBP/USD rose for a fifth day and stopped within a lazy-day’s range of the July 2023 high
- USD/CAD fell to an 18-month low but is now trying to recover back to the July low
- AUD/USD failed to capitalise on the US dollar weakness, closing flat for the day with a Rikshaw man inside the 0.6737-0.6750 resistance zone, leaving me with a neutral bias for now
- The S&P 500 and Nasdaq rose 0.4% and 0.5% respectively, although the tech index remains hesitant to gun for 20k and both produced small daily ranges
- ASX 200 futures rose for a 9th day (best streak in nine years) although stopped just shy of 8,000
The US dollar index fell to its lowest level since January on Fed-cut bets. Yet while bond yields are also lower this week, they remain above their NFP lows set on August 2nd. This could suggest that bond traders have already priced in their dovish outlook for the Fed, whereas the recent weakness of the USD is simply forex traders closing the gap with the bond market, which has a reputation for taking the lead and usually being right. So unless we find Jerome Powell truly releases doves in vast quantities on Friday, USD bears may be left with disappointment as they’re forced to capitulate and watch the dollar rise with bond yields. Even if only temporarily.
Events in focus (AEDT):
- 09:00 - AU PMIs
- 10:30 - JP services PMI
- 17:30 - DE flash PMIs
- 18:00 - EU flash PMIs
- 18:30 - UK PMIs
- 22:00 - Jackson Hole symposium
- 22:30 - US jobless claims
- 23:45 - US flash PMIs
USD/JPY technical analysis:
Earlier this week I outlined a bias to seek dips down to 144 on USD/JPY, on the premise that USD bears were too eager ahead of Jerome Powell’s Jackson Hole speech on Friday. Price action on Wednesday shows that USD/JPY bears are losing stream, despite the USD falling against most forex majors. An inverted hammer formed above 144, so there are at least early signs of a potential turnaround. The question is whether we’ll see any mean reversion higher ahead of Friday’s speech or not.
The 4-hour chart shows a bullish divergence on the RSI (2), and that prices are holding above the 144 handle. It may be premature to call a bottom and might be wise to not think of 144 as a magic level that will hold without being tested first. But my preference remains to look for evidence of a swing low. Perhaps we’ll be treated to a false break / spike beneath 144, or a series of bullish reversal candles at lower levels. But given USD/JPY fell -12.5% to the August low, I still suspect the retracement higher from the August low has the potential for another leg higher.
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
