The top performing G10 currencies this week were NZD, AUD and CAD, in that order. At the bottom of the list were JPY, USD and CHF.

That’s a classic risk-positive trade setup that has been underlined by the selloff in bonds and the best week for US equities since April. It’s a clear signal that the market feels it overreacted to the Fed, perhaps with a short-squeeze adding to moves.

The mode now is to wait and watch on economic data, particularly jobs and inflation to get a sense of when the Fed will hike next. If NZD/JPY is any indication, we’re not out of the woods yet. The pair recovered from last week’s slump but is now right where it was before the FOMC.

The back-to-back big moves in consecutive weeks cancelled one another out and leaves the market uncertain. There’s a chance the range over the past month could persist through the summer.

• EUR long 89K vs 118K long last week. Longs trimmed by 29K
• GBP long 18K vs 32K long last week. Longs cut by 18K
• JPY short 53K vs 47K short last week. Shorts increased by 7K
• CHF long 14K vs 9K long last week. Longs increased by 4K
• AUD short 17K vs 18K short last week. Shorts trimmed by 1K
• NZD long 3K vs 3K long last week. No change
• CAD long 43K vs 44K long last week. Longs trimmed by 1K

There were substantial shifts into euro and GBP longs in the lead up to the FOMC decision. That left a big chunk of the market vulnerable to the Fed surprise. Afterwards, there was a bit of rush to the exits and that likely exaggerated last week’s rally in the dollar. I’m surprised we didn’t see that in CAD as well but those proved to be stronger hands.

The USDJPY moved to a new high for 2021 earlier today after breaking above the March 31 high of 110.96. The high price today reached 111.099.

Looking at the hourly chart below, the move above the March 31 high at 110.96 lasted for about an hour or so before failing and moving back to the downside. The corrective high price since the break lower reached 110.909 – about 5 pips below that old high.  The current price is trading around 110.734. That takes the price below the June 17 high of 110.818.

The JPY weakness helping push USDJPY up through 111.00 and US 10 year yields snugged up to 1.50%. The next major test is up at 111.50 with some heavy daily resistance clustering up there.  US strength should remain heading into Friday on expectations of more inflationary signs from the US PCE deflator.

The JPY remains the strongest currency on the day following on from last weeks strength as positions in the GBP, EUR, and CAD were unwound against the JPY.

Just a couple of ones to take note of, as highlighted in bold.

The chunk in EUR/USD around 1.2115-30 is likely to keep price action rangebound before they roll off, adding to the lull ahead of the FOMC meeting later in the day.

Besides that, there is some attraction for USD/JPY closer towards 110.00 in the days ahead with the expiries today likely to support things going into North American trading.

Elsewhere, there is also still some decent expiries seen for AUD/USD around 0.7700 and 0.7750 so that could keep price action more sticky in the days ahead as well.

That said, a lot depends on the reaction to the Fed so there’s that to consider.

The dollar is trimming losses slightly against the euro and franc but is still keeping lower against both currencies, and is now grinding a slight advance against the rest of the major currencies bloc in European morning trade.

GBP/USD has eased a little back under 1.4100 though key support is still seen closer around 1.4073-86 while AUD/USD has also slipped just below 0.7700 for now:

The latter is testing the lows from Friday but in the context of the past few weeks, none of these moves are really breaking out of range to be fair.

USD/CAD is also up a little to 1.2165 with minor resistance seen closer to 1.2170-77 before further resistance is seen at 1.2200.

I wouldn’t look too much into any of these moves for the time being unless they start to chip away at key technical levels. The FOMC meeting tomorrow still holds all the cards.