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USD Treads Water Amid Debt-Ceiling Negotiations, JPY Under Pressure

FOREX
  • The Dollar index trades at unchanged levels from Friday’s close as markets continue to await concrete progress over the US debt-ceiling negotiations. Hawkish Fed speak weighed on front-end rates in the US, having more of an effect on the Japanese Yen, with USDJPY rising back to 138.50.
  • USDJPY has recovered the entirety of Friday’s sharp decline and the pair has spent the majority of late session consolidating around 138.50. Price action reaffirms that bullish conditions remain intact following last weeks’ strong gains. A key resistance zone between 137.77-91, the May 2 and Mar 8 high respectively, has been cleared. The break strengthens bullish conditions and confirms a resumption of the uptrend that started on Jan 16. The focus is on 139.00 and 139.59, a Fibonacci retracement. Initial firm support is seen at 135.78, the 20-day EMA.
  • In similar vein, there was some pressure on the Chinese Yuan. USDCNH crept higher to the best levels of the session through the London close, however Friday's highs still sit well above at 7.0750.
  • Today's uptick has put the pair back into overbought territory, with the 14d RSI just north of 70 and inline with levels seen late last week. This is the highest level for the technical measure since September last year - which was followed by a ~3% pullback in the pair over the subsequent two weeks. The moves come after the Chinese authorities issued their first warning over the pace of CNY depreciation last week - stating that they will curb speculation "when necessary" and maintain FX stability.
  • After a slow session, void of any tier-one data releases, the economic calendar hots up on Tuesday with a host of global flash manufacturing and services PMIs. US new home sales and Richmond manufacturing will also cross. Focus will then quickly turn to Wednesday’s RBNZ decision.
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