US Dollar Talking Points:
The US Dollar stays close to assist after an action-packed previous 24 hours. Yesterday’s FOMC assembly noticed the Fed hike charges by 75 foundation factors for the second consecutive assembly. This wasn’t the 100 foundation level transfer that some had been fearing, and the online response after that price resolution was energy in equities to associate with USD-weakness.
This morning introduced one other main driver to the fray with Q2 GDP, which printed in detrimental territory once more. This was the advance learn so it’s topic to revisions, however the print got here in at -0.9% which was well-below the anticipated 0.5% learn. It’s not as unhealthy as final quarters -1.6% however, nonetheless, it does present continued deterioration because the Fed has continued to elevate charges, and this brings up an vital level.
Rate hikes take time to transmit by means of an financial system, and we’re seemingly nonetheless seeing the influence from the Fed’s preliminary hikes filtering-in. This was one thing famous by Chair Powell at yesterday’s presser and one thing that fairness bulls actually appeared to run with, pushed by the prospect of the Fed slowing price hikes within the coming months ought to financial knowledge proceed to deteriorate. We’re not there but, after all, however given the transfer in yields, notably on the long-end of the curve, plainly some are starting to count on as such.
This morning introduced a breakdown in US yields because the 10-year pushed all the way down to a recent three-month-low. This illustrates that theme pretty effectively, with yields on the longer-end of the Treasury curve falling even because the Federal Reserve hikes charges, serving to to spice up the short-end of the curve.
I talked concerning the yield curve in better depth within the Tuesday article, and in case you’d wish to learn extra you’re definitely welcome to examine that out. It’s in the direction of the highest of the US Dollar Price Action Setups from Tuesday.
US 10-Year Treasuries
Chart ready by James Stanley; 10 12 months charges on Tradingview
This looks like a Euro story to me, at this level. I talked about it final week as EUR/USD was grinding into the parity stage and on condition that worth’s significance as a psychological stage, I believe it’s going to take a giant push from bears to go away it behind. A 100 foundation level price hike yesterday may’ve carried out it, as that was a theme of curiosity when the subject was within the headlines a few weeks in the past. But extra importantly I believe we’re going to want to see continued divergence between US and European price coverage.
This can present in one in every of two methods: Either stronger US knowledge, which alludes to the potential of a heavier hand from the Fed on the September price resolution. Or, the ECB staying comparatively free and passive at the same time as inflation grows.
On the a part of US knowledge, there’s some highlights on the horizon. Tomorrow brings the Fed’s most popular inflation gauge of PCE at 8:30 AM. Then at 10 AM, we get University of Michigan Consumer Sentiment numbers and these have been a focus of late, following final months print on the 50-level. This month noticed restoration within the preliminary prepared however tomorrow brings the ultimate print of that determine. And then subsequent week brings Non-farm Payrolls.
The US Dollar remains to be holding Fibonacci assist at this level, across the 38.2% retracement of the June-July main transfer. Resistance has played-in from across the 23.6% retracement of that very same examine, highlighting a variety that’s been in-play for a couple of week now.
US Dollar Four-Hour Chart
Chart ready by James Stanley; USD, DXY on Tradingview
EUR/USD: Still within the Box
On that subject of range-bound worth motion, I checked out a rectangle formation in EUR/USD on Tuesday. That setup continues to hold curiosity. There’s been bend at this level, however no lasting breaks and this retains the door open for breakout potential into tomorrow’s batch of information.
From the every day chart beneath, sellers have had ample alternative to push for one more re-test of parity. There’s now been resistance inflections at 1.0233 in seven of the previous eight days. The indisputable fact that bears haven’t posted a much bigger break, even because the Fed has added one other 75 foundation factors to US charges, signifies that the pair should be oversold.
Given the rectangle, that breakout can hit in both path however there could also be a near-term bias in the direction of the bull facet of the equation, on the lookout for a breach of short-term resistance of 1.0233 to steer right into a check on the high of the field, round 1.0280, after which the prior multi-year low of 1.0340 comes into play as resistance potential.
EUR/USD Daily Chart
Chart ready by James Stanley; EURUSD on Tradingview
GBP/USD is continuous to rally, giving additional run to the falling wedge formation from two weeks in the past and, at this level, the pair is continuous the sample of higher-highs and higher-lows
As I had checked out on Tuesday, bulls had been tepid round exams of resistance or at new highs, resulting in the potential of reversal. There was even a construct of a attainable falling wedge formation, on condition that slower exercise close to resistance. But, after yesterday’s push, the rising wedge has been invalidated and there’s now an additional construct of higher-highs and higher-lows. Higher-low assist potential exists at 1.2090 at this level, and there’s one other spot across the 1.2021 Fibonacci stage.
GBP/USD Four-Hour Price Chart
Chart ready by James Stanley; GBPUSD on Tradingview
Shorter-term USD/CAD seems to be very messy to me. Longer-term might have some curiosity, nevertheless, notably for these on the lookout for assist situations across the US Dollar.
From the weekly chart beneath, the 33-pip zone in purple spanning from 1.2764-1.2797 has been an attention-grabbing pivot going again to November of 2020. This zone has helped to carry a number of resistance exams final 12 months and earlier in 2022. More lately, bulls have pressured a break and the weekly bar is presently displaying a response to the topside of that zone as worth motion assist. That bar doesn’t full till after tomorrow, however a maintain of assist at prior resistance might make for a compelling situation.
USD/CAD Weekly Price Chart
Chart ready by James Stanley; USDCAD on Tradingview
USD/JPY Breakdown Potential
I opened this text with a word on the 10-year yield as there could also be some pertinence right here with each USD and JPY themes.
As I had checked out final 12 months when the Fed began speaking up 2022 price hikes, if US charges are transferring, the Yen is of curiosity. As US charges are adjusting increased, with the BoJ holding pat, this provides attract to the topside of USD/JPY as pushed by carry commerce themes. And so long as US charges are going increased and the BoJ isn’t making any modifications, that argument stays robust.
When charges begin going the opposite method, nevertheless, look out beneath. As carry trades get squeezed with falling charges, these developments can unwind very, in a short time. And given the push in yields this morning it might seem that that is beginning to take root in USD/JPY.
At this level, the pair is testing assist across the 135.00 psychological stage however, notably, did set a recent month-to-month low this morning.
USD/JPY Eight-Hour Price Chart
Chart ready by James Stanley; USDJPY on Tradingview
From the weekly chart beneath, we will get some context on the matter and there’s a purpose why there’s a lot curiosity in Yen-strength themes given how constructed up these themes of weak spot had turn into.
At this level, there’s a logical argument to correlate risk-off ache, which might drive US yields-lower, as being a constructive for the Yen as carry trades endure additional unwind. And, optionally, it is a theme that will stay of curiosity in different pairings, resembling EUR/JPY.
USD/JPY Weekly Chart
Chart ready by James Stanley; USDJPY on Tradingview
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and observe James on Twitter: @JStanleyFX
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