26 July 2016 at 23:26 GMT
The yen surged and was the day's biggest gainer. Photo: iStock
By John J Hardy
Key developments in FX
- The USD is going nowhere in a hurry the day ahead of the Federal Open Market Committee meeting, as the JPY, AUD and NZD all surged stronger today.
- Sterling was hit for sharp losses overnight on news stories discussed in this morning's FX Update.
- The yen surged and was the day's biggest gainer as Japan's Finance Minister Taro Aso failed to provide clear enough signals on the timing and size of any eventual fiscal stimulus and on rhetoric that suggests the Bank of Japan is still at an arm's length from the fiscal authority.
- The CAD posted new lows versus the USD and has broken important multi-month resistance above 1.3188, but needs the USD to get a boost from the FOMC meeting tomorrow for the breakout to look more compelling.
- CHF was sharply weaker later in the day and EURCHF has rallied hard within the range and USDCHF is making a bid at posting a bullish engulfing reversal on the day if it closes near 0.9900 or higher.
It was easy to push over USDJPY with JPY-bullish news overnight as the pair faces two key tests this week in tomorrow's FOMC statement and Friday's BoJ meeting. The last major support area ahead of the cycle lows is perhaps the 61.8% retracement area around 102.85, though 103.25/50 has also been an area of contention and the recent rally from the 100.00 level has weakened the technical case for the longer-term bearish trend.
Clearly, a pivotal few trading sessions ahead. Bulls will be looking for a strong bounce post-BoJ and further confirmation with a rally back above 106.50/107.00.
Sterling teased to new tactical lows versus the euro and USD today, but snapped back stronger again, perhaps suggesting that short sterling is a crowded trade. This emphasises the recent 0.8425 resistance and suggests the side of least resistance may lie lower – with the first test the recent low near 0.8250.
This pair posted an interesting reversal from the lower part of the recent range and arguably posted a bullish engulfing reversal on the day, though we'll need to see a USD-supportive FOMC statement tomorrow to encourage the bulls for a test of parity and beyond to the upside from here.
– Edited by Gayle Bryant