Majors at Key Levels Heading into a Packed Week

July 25, 2016

What a week we have ahead!

It’s FOMC/BoJ later, sure. But lets first not overlook the Australian second quarter inflation data released Tuesday during Asia:

“AUD CPI q/q: 0.4% expected and -0.2% previous”

With the previous quarter’s inflation miss seen as the catalyst for the last RBA rate cut, traders’ eyes are rightfully focused on this early week release and have it earmarked as the premier confirmation signal for an August cut.

With markets currently pricing in a 65% chance of a cut, thanks to some economist expectations of a headline figure rebound, I actually think that AUD/USD has plenty of room to move either way and is well and truly in play for traders.

AUD/USD Hourly:
160725_audusd_hourly
Click on chart to see a larger view.

The hourly shows what seems to be a bit of an equilibrium level. Zoom out and you can see that it is basically the midpoint of a range and a visual representation of a market full of traders not willing to position themselves heavily one way or the other.

AUD/USD 15 Minute:
160725_audusd_15minute
Click on chart to see a larger view.

I’ve thrown in the 15 minute chart as it is a little intra-day confluence of resistance to begin the week on.

No way is this the sort of level you blindly short, but if it breaks and fails, the channel could act as a nice re-test level on the way back down, and help to accelerate momentum to the lows quite quickly. Confirmation like this is key for taking trades off such short term, intra-day levels such a this.

Moving onto the week’s big ticket item, the US FOMC meeting Thursday morning and the quiet Fed has to finally start to pipe up once again!

“USD FOMC Statement”

“USD Federal Funds Rate”

With 2016 rate hikes having been thrown out the window, attention turns to forward guidance and just how confident the Fed is as we head into the back half of the calendar year.

USD strength has been a common denominator across the forex majors, but it has really been all about external factors driving /USD forex markets.

USDX Daily:
160725_usdx_daily
Click on chart to see a larger view.

From a technical point of view, we focused on the USDX early last week. We spoke about said strength, but also highlighted the confluence of resistance that price was butting up against. Price has pushed its head through the level and tested the gap.

As we get further into the week and the Fed speakers start to crawl out of the woodwork, we’ll look to try and identify some pricing and expectation mismatches into the release.

Now finally, lets not forget the evolving Yen story set to explode this week in the lead up to Friday’s BoJ meeting.

“JPY Monetary Policy Statement”

Will the BOJ disappoint an expectant market?

USD/JPY has rejected off daily channel resistance late last week on a simple headline rumour, giving a preview to the type of knee jerk reactions we can expect this week.

USD/JPY Daily:
160725_usdjpy_daily
Click on chart to see a larger view.

With the rally USD/JPY has seen over the last month or so, in my opinion they are going to have to pull out all stops not to disappoint.

While you can read plenty of economist opinions’ on desperate, last resort monetary policy that we’re seeing in Japan, all that matters to us as traders is whether they will keep the market happy by matching its expectations. BIG expectations at that.

Dun dun dun!

———

On the Calendar Monday:
ALL G20 Meetings

EUR German Ifo Business Climate

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Dane Williams – @VantageFX

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