Technicals And Triggers - USD/JPY, EUR/USD, EUR/CHF, AUD/USD

Republished By Plato

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The first half of the year was rather choppy for the US dollar as massive bets of weakness were scaled down. Many on Wall Street expected the dollar to weaken as most of the other major currencies were about to deliver significantly more tightening. Regional growth rotations on an improving outlook from a roaring Chinese economy were also supposed to support the case for strengthening commodity demand.

The dollar might be positioned for a little more short-term strength here as the odds for more rate hikes have steadily increased while rate cut bets get pushed into next year. The Fed’s higher for longer stance on rates seems to slowly be winning over some traders.

Macro traders will undoubtedly be following the NFP report, but may fixate over next week’s inflation report. We could actually get a soft report that gives us a headline 2.9% year over year reading. The June inflation report might be a short-term bottom for the disinflation process as the base effects will be responsible for a large part of the decline. By the end of summer, inflation might prove to be sticky given the current drivers, which includes economic resilience, a strong labor market, and decent spending.

USD/JPY

Sell signals are emerging and intervention talk is brewing given we are at levels that triggered Japanese intervention last year. Many yen traders are focused on the 145.50 region and the 143.75 level. Technical traders that follow DeMark indicators are eyeing a potential sell countdown, which would require a drop below the 143.90 level. If prices closed above the 145.51 level, further upside could target the 150 zone. Last year, the Demark countdown finished in mid-July and it soon saw an over 6% drop.

EUR/USD

Euro dollar bears have been increasing their exposure to options, with some eyeing some protection to euro weakness in Q3. Last week, the Depository Trust & Clearing Corporation saw strongest demand in over two months, with put volumes gaining more attention with a 3:2 margin. The euro-dollar has been triangulating and appears poised for a breakout soon.
Potential trigger:
Everyone has their eye on the NFP report, but next week’s CPI report could be more impactful. Wall Street might become more confident after the July 12th inflation report that the Fed will be done after delivering one more rate hike.

EUR/CHF
The Swiss franc might start looking more bullish if the SNB keeps up the hawkish rhetoric. SNB President Jordan is suggesting monetary policy is not tight enough. Many traders, like ANZ are eying strategies that short EUR/CHF on any spike towards the 0.99 level.

Potential trigger:
Friday’s German industrial production and if economic gloom becomes the dominant theme for the eurozone.

AUD/USD
The RBA rate pause and softer Chinese services data sent the Aussie-dollar lower. Expectations for the Australian dollar to weaken further could grow if they see a much worse slowdown in the economy. Rate hike odds for the RBA are just over a coin flip for the August 1st meeting, so if the outlook deteriorates further, that could pave the way for more AUD downside.

Potential Trigger:
Friday’s expiration of A$1.5 billion of options at a strike price of 0.6700 could lead to some big moves.

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Ed Moya

Senior Market Analyst, The Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.