Currency Updates:
AUD/USD shook off a new high for the move in the broader USD, holding a test of key support at .9290. Fed chair Yellen’s speech offered little new news, but expectations were so high for a dovish slant that the net result ended up giving the dollar bulls another reason to press on. However, the US rate market is still willing to underprice the Fed’s central tendency, not believing that rate hikes will match the rhetoric. Jackson Hole didn’t change this view and this stance serves to keep the ‘carry trade’ intact. With the S&P within close reach of record highs the markets are displaying no fear of the Fed, all of which creates a positive backdrop for AUD. A breakout above 96.50 in AUDJPY led the way for the Oz (chart below) and gives bulls a reason to establish a foothold in other pairs. AUDUSD resistance is at the high of the week (.9345) and the 40 dma at .9356.
EUR/USD After Asia’s failed attempt to bid prices back above 1.3300, EUR/USD trundled lower on spec selling interest that intensified after Yellen’s JH speech. The session low at 1.3220 landed right on the 61.8% retracement of the ’13-’14 rally. Neither Yellen’s speech nor the papers presented on the labor markets created a crisp insight into policy or a solid case for the Fed accelerating its cautious normalization plans, which left an oversold mkt facing pre-weekend short profit-taking into the London close. The same calculus applied after Draghi’s speech in the afternoon. Without a major policy shift, the urge to book some profits prevailed, particularly as morning Tsy bond yield gains were trimmed. That said, the front of the curve has held most of it yield rise from Yellen. Draghi sounded a brave note re TLTROs, ABS, GDP improvement and room for further EUR/USD slippage due to diverging Fed & ECB policies. QE was also hinted at as a backstop, but the more the EUR falls, the less pressure there is for new easing measures. Barriers at 1.3200 go wanting, but the week’s ending well below the weekly Cloud; a M-T sell signal in-and-of itself.
USD/JPY With help from a USD-bullish interpretation of Fed Chair Yellen’s JH speech and higher Tsy yields, USD/JPY cleared its Apr peak at 104.13 and the offers by 104. But both USD & Tsy yield gains receded in the afternoon, dragging USD/JPY back down to around unchanged for the day. Bidders noted at 103.50. With daily RSI in the 80s, prices spending much of the last three days trading above the upper 21-day Bolli band and historically elevated short spec yen positioning, some pre-weekend pullback was always a risk, if countered by de rigueur dip-buying and a lack of serious exporter selling pressure. Just as ECB’s Draghi noted that the EUR should weaken further as a result of diverging ECB & Fed policies, the markets also assume that the Fed-BOJ contrast and no serious political pushback against QQE mean this year’s 105.45 peak remains in play. There was a modest setback in the N225 futures and other equity indices Friday, but not enough to seriously undermine the USD/JPY’s risk-related bid. EUR/JPY consolidated gains after hitting 138 & offers just ahead of the Aug 1 high, while AUD/JPY retained its post-breakout gains into the weekend.
Looking Ahead – Economic Data (GMT)
• No Significant Data
Looking Ahead – Events, Other Releases (GMT)
• No Significant Events
