Well, we’re getting nicely into the summer months now buttrading is far from the typical quiet action we see over the summer. This weekwe’ve had plenty of noteworthy moves once again and, talking with traders aheadof the weekend, it seems the big move everyone is focused on is the breakout inthe US Dollar. In terms of specific pairs, the breakout to 20-year highs inUSDJPY has been the focus point. So, let’s take a look at what caused the moveand, as ever, if you caught it? Well done! If you missed it? There’s alwaysnext week!
What Caused the Move?
US CPI Runs Hot
The US Dollar started the week strong on the back of astronger-than-expected US jobs report the prior Friday. With the headline NFPcoming in well above expectations, focus was kept firmly on Fed tighteningexpectations for July with traders looking for a .75% hike, same as June.However, into the middle of the week USD was boosted higher still by the JUNECPI report which, again, came in above expectations.
Increased Fed Tightening Expectations
Annual US CPI was seen hitting forty-year highs in June of 9.1%.With both core and headline readings seen rising above estimates on the monthlydata, Fed tightening expectations were further amplified with traders now jugglingthe prospect of a larger 1% hike, as we saw from the BOC on Wednesday. The USDollar was sent firmly higher on the back of the data which was also seen asquashing any prospect of a post-July rates pause from the Fed. The fresh uptickin US CPI was seen as a new catalyst for USD demand and has rejuvenated buyingin the greenback.
BOJ Committed to Maintaining Easing
At the same time that Fed tightening expectations are blowingup, the market’s expectations with regards to the BOJ remain firmly anchored ineasing territory. The BOJ continues to reaffirm its commitment to easing andits view that the Japanese economy is not yet strong enough to withstandmonetary policy tightening. With clear divergence in the monetary policyoutlook (and expectations) between the Fed and the BOJ, USDJPY has taken off ona fresh rally.
Looking ahead, the market will now be waiting to assess thestrength of today’s US retail sales data. We heard from Fed’s Waller yesterdaythat he would likely support a larger than .75% hike if today’s retail data wasstrong also and so for now, all eyes are on the data. A further strong releaseshould see USDJPY continue higher into next week while even a miss will likelyallow JPY some room to breathe ahead of the FOMC.
Technical Views
USDJPY
The breakout in USDJPY this week has seen the pair trading abovethe 136.88 highs. With the market still moving within a clear bullish channel,while this level holds as support, the focus is on a continuation higher with146.97 the longer-term goal. To the downside, the channel lows and the 134.39level are the key supports to note.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.