Talks of a rate hike pause by this summer has weighed on USD across the board.
Will today’s U.S. ISM services PMI bring USD/JPY back up to its intraweek resistance?
Before moving on, ICYMI, yesterday’s watchlist checked out USD/CHF’s channel resistance ahead of some FOMC member speeches. Be sure to check out if it’s still a valid play!
And now for the headlines that rocked the markets in the last trading sessions:
Fresh Market Headlines & Economic Data:
ECB’s February minutes showed agreement over further tightening, but also talks of policy rates “coming closer to a level where caution was needed to ensure that monetary policy was not tightened excessively.”
U.S. initial jobless claims, a proxy for layoffs, dipped from 192K to 190K last week and supported a strong labor market and further rate hikes.
RBNZ Gov. Orr: We need to bring inflation back to target range “over a reasonable horizon” to not “unnecessarily crash the economy and turn temporary, slower growth into permanent unemployment.”
FOMC member Neel Kashkari shared he’s open-minded about a 25 or a 50bps rate hike.FOMC member Raphael Bostic is still “very firmly in the quarter-point move pacing” but believes the Fed can be in the position to pause rate hikes in mid or late summer.
Tokyo’s core inflation slows from 42-year high of 4.3% y/y to 3.3% in February, closer to BOJ’s 2% target
Japan’s unemployment rate unexpectedly dipped from 2.5% to 2.4%, the lowest reading since February 2020.
China’s Caixin services PMI improved from 52.9 to 55.0 in February, mirroring other post-COVID business activity recoveries earlier this week.
As COVID stimulus measures wind down, Australia’s new owner-occupier first-home buyer loan commitments dropped 4.9% m/m in January, to their lowest level since February 2017.
New Zealand’s consumer confidence eased 3 points to 79.8 in February amidst higher living costs and interest rates
Bitcoin and other major cryptos dropped sharply in a short time period. No direct catalyst yet but it didn’t help that California-based Silvergate Bank, a crypto-friendly financial institution, failed to submit an annual report and shared that it’s having operational issues.
Germany’s trade surplus rose from 10.0B EUR in December 16.7B EUR in January. Improved global demand bumped up exports by 2.1% m/m while weaker domestic demand dragged imports by 3.4%.
Price Action News
Overlay of USD Pairs: 15-min
U.S. session traders started their day by pricing in Uncle Sam’s tight labor market from the initial jobless claims and labor productivity reports.
Things turned around for the dollar and risk sentiment, however, after FOMC member Bostic opened the conversation of a rate hike pause as soon as mid to late summer this year.
U.S. Treasury yields turned lower and U.S. equities and other risk assets turned higher. Asian session traders looked ready to pick up the U.S. session’s themes but a lack of catalysts kept the major assets in tight ranges instead.
Bitcoin and other major cryptos missed the memo though! There were no catalysts but traders are so far blaming the sharp downswings on Silvergate Bank’s headlines.
Upcoming Potential Catalysts on the Forex Economic Calendar:
Eurozone’s final services PMI reading at 9:00 am GMT
U.K.’s final services PMI at 9:30 am GMT
Eurozone’s PPI report at 10:00 am GMT
Canada’s building permits at 1:30 pm GMT
U.S. final services PMI at 2:45 pm GMT
U.S. ISM services PMI at 3:00 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! 🔥 🗺️
Technical Chart of the Day: USD/JPY
USD/JPY 15-min Forex Chart by TradingView
The release of the U.S. ISM report means more volatility opportunities for the dollar!
I’m keeping close tabs on USD/JPY, which just bounced from the 136.25 level that coincides with a quarter of its daily ATR.
As you can see, USD/JPY’s intraday low is also not too far from the standard Pivot Point’s S1 as well as the 50% Fibonacci retracement of yesterday’s upswing.We already know that Bostic’s “rate hike pause by mid-summer” talks have weighed on the safe-haven dollar and pushed risk assets higher.
If the anti-dollar theme extends to the European and early U.S. session trading, then USD/JPY could drop to half its daily Average True Range and hit the 136.00 psychological level.
But if today’s U.S. ISM services PMI reminds traders that the U.S. labor market remains strong enough to withstand even more rate hikes, then USD/JPY could get back to its mid-week uptrend.
USD/JPY could continue its upswing back to today’s open prices or even the 137.00 previous resistance zone.