USD rallied across the board on Tuesday following Fed Chair Jerome Powell’s appearance before a Congressional committee. However, late in the session, the stock market sold off and bond yields gave back some of their gains. That left USDJPY little changed on the day.
Attention now turns to Thursday’s inflation update. Headline PCE at 1.7% and core PCE at 1.5% are expected to hold steady on last month’s reading, on an annual basis. The month-on-month numbers will be up significantly, but base effects – high numbers from 12 months ago dropping out of the annual calculation – explain no movement in the year-on-year numbers. However, even a marginal beat on forecasts would boost the dollar.
Later on Thursday, Powell testifies before a Senate committee, giving him a chance to “clarify” any misinterpreted comments that he may have made yesterday.
Management and risk description
The US dollar’s rally from ¥105.55 (near trend channel support) still appears incomplete, with the opportunity for a C-Wave rally onto new recovery highs, with Wave-c equalling Wave-a at ¥108.75 (see daily chart below).
Exhaustion of this rally would then point to the resumption of downtrend. As always, the market will “tell us".
Entry: US dollar is seen as a Buy at ¥107.35/¥107.20 today.
Stop: just below ¥107.00, initially.
Time horizon: allow a few days for target to be met
Daily USDJPY chart (click to expand)
Weekly USDJPY chart (click to expand)
— Edited by Robert Ryan
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