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FOREX: Powell’s Dovish Lean / Risk Off Prompts Renewed USDJPY Weakness

FOREX
  • Moves in currency markets on Wednesday’s were wholly focused on the substantial moves for the Japanese Yen following the overnight rate hike from the Bank of Japan. After reaching as high as 153.88 in the direct aftermath of the decision, USDJPY has traded with an overwhelming offered tone, with the pair reaching as low as 149.64.
  • The greenback traded in a more supportive manner ahead of the month-end WMR fix, edging around 30 pips higher as we approached the July FOMC decision and statement release, primarily driven by the near 1% bounce for USDJPY, approaching back toward 151.00.
  • The pair popped to 151.26 as the Fed failed to adjust its forward guidance, however, a dovish leaning Powell hinting that a September cut will likely be on the table prompted renewed weakness. USDJPY grinded back below 150.00 and sits close to session lows as we approach the APAC crossover.
  • Given the sharp post-BOJ moves, initial resistance moves down to 151.94, the July 25 low. A close below this point would be an important development reinforcing the current bearish trend. On the downside, renewed weakness would place the focus on 148.54, a Fibonacci retracement point.
  • Late headlines from the New York Times claiming Iran has ordered a retaliatory attack on Israel may have exacerbated the price action, taking the shine off an otherwise stellar day for major equity indices.
  • With that said, NZD has also outperformed, rising 0.85% against the greenback, while the yen strength has also filtered through to a more moderate bid for the Swiss Franc and sees USDCHF 0.58% in the red.
  • Action continues to come thick and fast Thursday with the Bank of England decision and US ISM manufacturing data for July.
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