USD: Short Squeeze or Sustainable?

May 10, 2016

Image: Pexels

USD: Short Squeeze or Sustainable?:
With the recent volatility in Oil taking away attention and column space, we skimmed over the NFP fallout for markets and what it all means for the Fed heading forward. Is a June hike in play?

USD Non-Farm Employment Change (160K v 203K expected)
USD Unemployment Rate (5.0% v 5.0% expected)
USD Average Hourly Earnings m/m (0.3% v 0.3% expected)

While you can see that the headline numbers don’t jump out at you, there was enough hope in the fine print to keep the Fed upbeat.

I very much recommend reading this New York Times piece with New York Fed President William Dudley. Dudley gives some straight up answers about his interpretation of Friday’s employment numbers.

“I wouldn’t make too much about the headline payroll number being a little softer, because there’s other things in the report that are more positive. For example, total hours worked were up quite a bit; average hourly earnings were up quite a bit.”

“The data on payrolls is quite volatile month to month — 160,000 sounds like a lot weaker than the 200,000 people were expecting, but it’s actually well within what you’d expect in terms of normal volatility.”

Essentially NFP was neither a disaster or a godsend. The Fed is continuing to talk the talk, but markets aren’t going to be willing to price their optimism in. Probably rightly so because the data just isn’t there.

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Chart of the Day:
Lets seamlessly move into the charts today and a look at USD via USD/JPY.

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

As you can see on the clean USD/JPY chart above, the pair is acting textbook bearish trend. Price is breaking lows before retesting the previous support as resistance and continuing lower again. Price has now pulled back to retest the latest broken low.

Price hasn’t yet done any technical damage, but I’m hugely wary of a USD/JPY short squeeze here. The headline data wasn’t great, we know everyone has been riding this pair down for a few months now, but price is stubbornly bouncing. It just has a short squeeze feel to it.

For now, the level is there until its not.

USD/JPY 4 Hourly:
uj50
Click on chart to see a larger view.

I also wanted to include this little bonus chart with something that caught my eye this morning.

Every now and then drawing some studies onto your charts, something just lines up perfectly that makes you go wow. Today that happened when I placed a horizontal line at previous gap support/resistance. The fact it lined up perfectly with the 50% fib from the most recent retracement got my attention.

There are always levels to trade.

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On the Calendar Tuesday:
CNY CPI y/y
CNY PPI y/y

USD FOMC Member Dudley Speaks

Do you see opportunity trading Forex and Commodities with Vantage FX? Take advantage on your own instant $50,000 Forex demo account.

Dane Williams – @VantageFX

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