Momentum finally turned lower on Wall Street after two Fed members forced traders to question their increasingly dovish positioning, ahead of Jerome Powell’s speech at Jackson Hole. USD/JPY may have already seen the swing low I’ve been seeking this week.
By :Matt Simpson, Market Analyst
Momentum finally turned lower on Wall Street after two Fed members forced traders to question their increasingly dovish positioning, ahead of Jerome Powell’s speech at Jackson Hole. Boston Fed President Susan Collins told Bloomberg and Fox news that Fed cuts should be “gradual” and “methodical”, which was backed up with similar wording by Philadelphia Fed Chief Patrick Harker.
While they backed rate cuts to begin soon, their comments cast a shadow of doubt over the pace of easing into next year. And these comments took center stage, despite a softer US service PMI report. Markets reacted with a classic response to a shift of less-dovish-than expected news. The moves are not excessive compared to the rally we have seen over the past few weeks, but big enough to leave an array of bearish engulfing days and make traders pause for thought before their next blast of dovish hopium.
- Bond yields drove the US dollar higher, seeing EUR/USD, AUD/USD and the like pull back from their peaks, tracked lower by gold and Wall Street indices.
- Bearish days formed on the Dow jones, S&P 500 and Nasdaq 100 (which faltered below $20k)
- WTI crude oil broke a 4-day losing streak and bounced from support in line with yesterday’s bias, reaching a high of around $73.50 above the $73 target.
- USD/JPY may have formed its swing low above in line with my bias, with a 3-day bullish reversal (morning star)
Events in focus (AEDT):
Jerome Powell’s speech is the big event of the week, and hopes for a dovish speech may have been priced in already. That leaves markets vulnerable to retracing further against recent moves (which is an extension of moves seen on Thursday) if Powell does not lay out a path of multiple rate cuts this year and next. Anything less could further support the US dollar and yields to the detriment of risk assets such as commodities, commodity FX and indices.
- 08:45 – NZ retail sales
- 09:01 – GfK consumer confidence
- 09:30 – JP CPI
- 15:00 – SG CPI
- 22:30 – US building permits
- 22:30 – CA retail sales
- 00:00 – Fed Chair Powell speaks at Jackson Hole
Click the website link below to get our exclusive Guide to USD/JPY trading in H2 2024.
https://www.forex.com/en-us/market-outlooks-2024/h2-usd-jpy-outlook/
USD/JPY technical analysis:
A 3-day bullish reversal pattern has formed on the daily chart of USD/JPY, which hints at a swing low. The bias this week has been to seek dips towards 144 in anticipation of a move towards 150, and the low may already be in place at 144.47.
A falling wedge pattern has emerged on the 1-hour chart, alongside a bullish divergence. The wedge projects an upside target near its base just below the 150 handle and high-volume node (HVN) at 149.77. Bulls could seek dips towards Thursday’s low in anticipation of the next leg higher. Note the high-volume 144 handle, 145.16 HVN and monthly S1 at 145.64 which could provide potential support should prices retrace lower.
View the full economic calendar
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options