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USD/JPY sees not much to work with following BOJ policy decision

  
Analysis, Forex

USD/JPY keeps little changed on the day after an initial spike higher

USD/JPY H1 19-03

Was the BOJ more dovish or hawkish today? That’s a question that yen traders may not necessarily get the answer to in the immediate aftermath.

There were a couple of key takeaways from the policy decision, so let’s explore:
  • BOJ removes ETF target purchases, but keeps ceiling of ¥12 trillion
  • BOJ widens range of 10-year JGB yields fluctuation to +/- 0.25%
  • Introduces interest scheme to mitigate side effects of cutting rates again, if needed
  • Introduces fixed-rate purchase operations to prevent significant yields rise
  • Judges that QQE and YCC are still appropriate policies to continue with
The first two points are arguably leaning more towards the hawkish side, though of the key takeaways above have already been communicated in the run up to the meeting via media leaks and reports over the past week or so.
However, the BOJ still judges that large scale ETF purchases are still effective in keeping the market more stable during times of “heightened instability”.
Meanwhile, this is also the first time that the BOJ has officially put the 10-year JGB yields band into its policy statement – before this it was just a verbal commitment.
The other remaining points lean more towards the dovish side, with the new interest scheme largely to try and convince the market that the BOJ does have room to cut rates further; after having been questioned persistently on the side effects of doing so.
As such, there is a mixture of elements in there for yen traders to work with. But ultimately, I reckon it’ll come down to how the JGB market may look to test the BOJ’s commitment of the 0.25% band above the 0% target.
Going back to the USD/JPY chart, traders look like they are still trying to make up their mind with Treasury yields also a key factor to watch out for.
Topside is limited around short-term resistance near 109.26-36 with the 200-week moving average @ 109.00 one to be mindful of ahead before the close today.
But overall price action continues to trade in and around the key hourly moving averages @ 108.90 and 109.07 respectively, with near-term support seen closer to 108.77 and also from yesterday’s low @ 108.63.
Those will be the key levels to watch in order to gauge how buyers or sellers are going to attempt to extend their bias in the pair ahead of the weekend.
Not forgetting that there is a decent-sized expiry ($840m) rolling off today at 109.00 as well. And just bear in mind that we are also approaching the fiscal year-end in Japan, though repatriation flows should arguably have been mostly done in the weeks prior.

Bank analyst says favours NZD, CAD, AUD after the dovish Fed

  
Analysis, Forex

A response to the Federal Open Market Committee and Powell’s press conference from an analysts at a bank that has to remain unnamed.

  • says the FOMC was more dovish than they expected
  • which supports risk appetite, commodity FX
  • weighs on the US dollar
  • on EUR/USD says risks more balanced, major headwinds in the eurozone … on balance today’s FOIMC reduces downside risk for the EUR
Hard to argue with any of that really, and markets are way ahead of this note with their response already.

A response to the Federal Open Market Committee and Powell's press conference from an analysts at a bank that has to remain unnamed.

US dollar drops and risk trades rally as Fed dots say no hikes until 2024

  
Analysis, Forex

Dollar falls around 40 pips across the board

Dollar falls around 40 pips across the board
The US dollar has slumped and risk assets are rallying after the FOMC statement and forecasts.
The latest dot plot shows 7 of 18 Fed members forecasting a rate hike (or more) in 2023. That means the majority still see no move higher through that year.
The immediate reaction was selling in the US dollar and buying equities. The S&P 500 went from -20 to +4 and the Nasdaq from -1.1% to flat. USD/CAD is down to 1.2440 from 1.2485. EUR/USD is up to 1.1950 from 1.1910.
It’s a uniform move across the board and is likely to be underscored by Powell in his press conference.

US dollar makes some headway against the euro and yen

  
Analysis, Forex

Dollar Index rises above 92

Dollar Index rises above 92
The Dollar Index flirted with 92 a few times last week but was consistently rejected. It’s now made its way above it as the euro and yen come under pressure.
I’m hesitant to take any signals ahead of the FOMC but the tone of the commentary around the FOMC has shifted dramatically in just two weeks. Back then, there was non-stop talk about rising bond yields and now commentators and economists don’t seem to be worried at all, and are talking about the Fed being more upbeat.
I’m not sure that’s going to be the case. Powell and other Fed members have consistently highlighted high unemployment and remaining patient through the reopening. It’s way to soon to be declaring victory and any kind of hint at tapering would undermine the Fed’s credibility.
At the same time, you can’t ignore the inflation picture. US 10-year breakevens are at 2.30% today, the highest since 2014.
That leaves the Fed in a tough spot, they could declare victory but if you send a tightening impulse as soon as the market sees above 2% inflation, then you only hammer home that 2% is a ceiling and that all the talk of an overshoot was hollow.
So I think they stay dovish and that risks to the dollar are on the downside. But of course Powell can’t control all the dots so that might undermine the message and keep the dollar bid.

Welcome to Fed week

  
Analysis, Forex

everything this week hinges on the upcoming FOMC meeting

There will be a couple of light distractions in the run up to Wednesday’s FOMC meeting but trading this week is going to revolve around the Fed, all things considered.
The language with regards to the bond market will be one to watch but the Fed will also be releasing its latest economic projections and dot plots are back in focus as well.
Imagine how would the market react if one rate hike was penciled in for 2023?
In case you need a reminder, here’s how the previous (latest) projection from the Fed:
FOMC
But as you can see, the market is well expecting a rate hike much earlier by the end of 2022 – with OIS pricing even indicating more than one hike by 2023.
Essentially, that’s part and parcel of the story in what is contributing to the rise in yields too (it’s not just an inflation story). So, will the Fed feel that its credibility is being undermined? Or is this all still acceptable for the time being? Or will they eventually cave?
That question is going to hold the key for Treasuries as yields are on the verge of an extended break higher as it holds at the February highs to start the week.

 

Fed

CFTC Commitments of Traders: EUR longs trimmed by 24K to the lowest level since June

  
Analysis, Forex

Weekly 4X futures positioning data for the CFTC for the week ending Tuesday, March 9, 2021

  • EUR long 102K vs 126K long last week. Longs trimmed by 24K
  • GBP long 34K vs 36K long last week. Longs trimmed by 2K
  • JPY long 7K vs 19K long last week. Longs trimmed by 12K
  • CHF long 14K vs 12K long last week. Longs increased by 2K
  • AUD long 8K vs 6K long last week. Longs increased by 2K
  • NZD long 17K vs 16K long last week. Longs increased by 1K
  • CAD long 11K vs 15K long last week. Longs trimmed by 4K
  • Last week’s report
Highlights:
  • EUR longs decline by 19% to the lowest long level since end of June 2020.
Weekly 4X futures positioning data for the CFTC for the week ending Tuesday, March 9, 2021_
  • GBP longs dip off the highest long levels since April 2018
  • JPY long position moves to the lowest long position since early March 2020 and down from the high of 50K during the first week of January.

EURUSD lower on the day but bounces off the 100 hour MA

  
Analysis, Forex

The run above the 200 hour moving average yesterday fails

The EURUSD moved above its 200 hour moving average yesterday for the first time since February 26, and in the process, extended above the midpoint of the move down from the March high at 1.19739 and a topside channel trendline. However, the high price yesterday stalled near the swing low going back to March 2 at 1.19907 (and also fell short of the 1.2000 level).
The run above the 200 hour moving average yesterday fails
In trading today, buyers try to lean against the 200 hour moving average, but could not sustain the bid. When the price correct below the level in the early European market, buyers turn to sellers on the failure and the price moved lower.
The lower channel trendline was ultimately broken but support held against its 100 hour moving average (blue line in the chart above).  The price has subsequently moved marginally higher off the key support target and as tested the broken 38.2% retracement at 1.19411.
What next?
With the price trading between the 100 hour moving average on the downside at 1.19096 and the 200 hour moving average above at 1.19581, the buyers and sellers are back in a battle for full control.   In between the levels sits the 38.2% retracement at 1.19411 which may tilt the bias down or up intraday.
If I were to give a nod to buyers or sellers, the sellers probably have more control. The price move to the upside this week is looking more like a corrective move of the bigger move lower. The price action failed above the 200 hour moving average, and topside trend line. The buyers had their shot.  They missed.
Having said that, if the pair is able to extend back above the 200 hour moving average, the landscape changes more in favor of the buyers once again.  The bearish tilt, turns more bearish below its 100 hour moving average at 1.19096.

US dollar climbs higher with yields

  
Analysis, Forex

US dollar at the highs of the day

The US dollar is catching a broad bid following the ECB press conference. I’m not sure I would connect the two events because there’s nothing particularly notable happening in the euro at the moment.
Yields are moving up at the long end in the US with 10s now at a session high of 1.53%. They had fallen as low as 1.47% a few hours ago. 30s are at 2.27% from a low of 2.21%. There’s a 30-year auction today.
The rise in the dollar has done little so far to dent equities but gold is now negative on the day and oil has carved out a double top at $65.60.
In short, there’s not a great reason for this move but keep an eye on yields.
EUR/USD:
US dollar at the highs of the day
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