Speakers from the Federal Reserve will be watched closely for weakness in expectations for a third rate hike this year. There is little room for upside as chances for a third hike have long been considered and priced into the markets. It is challenging to see much opportunity in comments further reaffirming a hike. However, any sign of tepidness should bring material downside moves to the dollar across forex markets. This news would align broadly with a technical downward trend we have seen in the USDJPY pair, which could pose opportunity for traders.
The USDJPY pair historically moves mostly on US data, and this week should be no different. With few surprises coming from Tokyo, traders will closely watch the news from the US and look for opportunity to trade the greenback versus the Yen.
As always, it is wise to track the yield on the 10 Year Treasury in relation to positions in Dollar / Yen. This note has historically demonstrated a strong correlation to moves in the USDJPY pair. The 10 Year has been trending down over the past month, from 2.25 at the end of May, to 2.15 this morning. In general, this action should help indicate overall directionality of the USDJPY pair.
In the currency markets, the pair has been trending in a downward channel for most of this year.
Over the past month, we have seen moves punctuated by marginally lower highs and deeper lows.
The prospect of several Fed Governor’s speaking, coupled with important data releases during a time of such rate speculation, should not give traders confidence in the dollar this week as markets could move incrementally against it. The market will be provided nearly daily updates with the opportunity to parse words and data for singals that show support at the Fed for a third rate hike is waning. Additionally, all indications this week are for a relatively quiet economic calendar in Tokyo. With this pair moving almost exclusively on news and data from the US, and with the prospects for that data to present downside risks, it could be a challenging week ahead for the dollar, with the potential for moves below 111.00 possible by mid-week on anemic comments or US economic data.