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USD, EUR/JPY, Nasdaq and S&P 500

Price Action Talking Points:

  • Rates are concentrated on the macro-front and this may continue to increase volatility in equities and FX markets. Below I see Price action In some markets of interest around those things.
  • This Wednesday’s CPI release is a hot button on Financial calendar for this week, and that is likely to affect rates.
  • The analysis contained in the article relies on Price action And Chart structures. To learn more about price action or chart patterns, check out our DailyFX Education Division.

Rates are moving in the US and given recent history, that volatility seems to be a viable medium for some time.

Markets are starting to build on anticipation/hope A Fed pivot may be approaching. “We’re rate neutral,” Powell said In the final rate decision And it’s widely read that the bank may be nearing a break-even point on rate hikes. And given how some economic data has started to deteriorate, like the U of Michigan consumer sentiment print of 50 in June or the CPI continuing to jump with the Fed hiking, there’s some potential supporting evidence for that narrative.

Last Friday’s NFP report Those promises were to be broken. Of course, it was a report. But it was a huge one with +528k jobs added against expectations for +250k. Perhaps more relevant to the Fed’s fight against inflation, wage growth continued to jump, coming in at 5.2% and 4.9%.

It’s a big deal: The Fed cited strength in the labor market, perhaps even stronger than many times when it raised rates in the first half of the year. That building expectation for the FOMC pause is married to expectations that data on the job market will continue to deteriorate, in particular. That clearly didn’t happen in the most recent NFP report and again, it’s just one report but it’s going in the exact opposite direction that the Fed wants.

Fed-speak

Also had to go to NFP last week The building narrative around the Fed is that markets are getting ahead of themselves In finding the pivot. I take it from what various Fed members have said or implied that ‘markets are getting ahead of themselves’.

The San Fran Fed’s Mary Daly went so far as to say the bank was ‘nowhere close’ to a rate hike, among a host of other, let’s say, ‘interesting’ comments. Neel Kashkari of Minneapolis, Charlie Evans of Chicago and Michelle Bauman of Kansas City weighed in on the matter, all pointing toward the possibility of a hawkish-Fed move forward.

Rates started to reflect this effect last week, but as I discussed In last week’s webinar, that impact was uneven, with the short-end of the curve seeing stronger gains than those shown at the long-end of the curve. This led to more yield curve inversions, with last week marking the deepest inversion of two- and ten-year yields since August 2000, before the tech boom turned into a tech wreck.

US Treasury Yield Curve – 10/2 year Treasury yield

We have a 10-2 treasury spread

A chart is prepared James Stanley; Also produced Business view

U. S. D

If we’re looking at a theme around US rates, the US dollar could be covered somewhere along the way. From the daily chart, the USD has tested last week’s support around the 50% mark of the latest major move, which is the confluence of both the 105 psychological level and the earlier resistance-turned-support position.

That candle last Tuesday was particularly powerful – bullish cover In addition A candle will touch right around that 105 level, low 105.049, thereby confirming 105 as support. Bulls show little over-low.

US dollar daily price chart

USD Daily Price Chart

A chart is prepared James Stanley; USD, DXY In the Trading view

USD short term

Short-term, the US dollar is doing a job Ascendant triangle. Resistance is showing around 106.82 and a series of high-lows has been printed since that support test last week. This leaves the door open for bullish breakout potential based on that formation.

As for the next resistance – the Fibonacci retracement from the May 31 low to the July high has given several inputs and the 107.41 level remains an outlier. Notably, the same study’s 38.2% pullback helps set support after the 50% marker passed last week.

US dollar four hour price chart

USD Four Hour Chart

A chart is prepared James Stanley; USD, DXY In the Trading view

Yen

I checked this on Wednesday but focused on rates, Yen remains an interesting variable on the FX-frontAnd the reason for this goes back to central bank policy.

BoJ In 2016 it went to negative rates. The design will help keep the yen weak and encourage investment. The results are mixed at this stage but there is no signal of change from the bank so far, and this has allowed the JPY to remain the currency of the money for carry trades.

When US rates are low and there is little hope of a change, that variable is less useful. But, when US rates start to rise, interest will increase Carrying business. And as rates rise, the potential rollover or swap payoff from the interest rate differential between the two economies increases. This increases demand, which helps to increase prices, and now we have a more symbiotic relationship because the rising interest rate pattern is in a bullish trend.

This illustrates USD/JPY’s retracement to September. I also set mine Top business for Q4 Rates in GBP/JPY over the past year have been a central reason. The Fed began highlighting the potential for rate hikes in 2022 at the September 2021 FOMC, and that theme has only grown from there.

More recently, however, those yen trends have begun to reverse, as markets build on the narrative that a break could be imminent. Last week saw USD/JPY fall with full steam. But, on Tuesday, some of Mary Daly’s comments started to hit the market, which started to show a change.

USD/JPY bounced more than 500 pips from Tuesday’s low to Friday’s high. Prices started to re-test the key area on the chart, projected around 135.00. Mental levelAnd that test took place this week.

USD/JPY Daily Chart

usdjpy daily chart

A chart is prepared James Stanley; USD/JPY on TradingView

I saw the pair last Wednesday, highlighting a breakout formation with resistance around 134.60. That breakout hit and prices rose above 135.00, but there was a lack of fresh bullish action above that level. There is support potential at 133.55 Fibonacci level for bullish continuation scenarios.

USD/JPY will be of interest for higher rate scenarios. If we see US rates continue to gain, carry attractiveness increases for bullish USD/JPY scenarios, which could continue the trend.

USD/JPY four-hour price chart

usdjpy four hour chart

A chart is prepared James Stanley; USD/JPY on TradingView

EUR/JPY

On the other side of the rates argument, for those expecting rates to fall, EUR/JPY may be of interest. If we see a yen-weakening reversal on the back of a carry trade unwinding, the euro could be a weak counterpart to such a theme.

The words ‘euro’ and ‘energy’ have probably not been linked together for some time but, against the yen, this has been a theme since last Tuesday’s sharp reversal in the JPY.

EUR/JPY is in an interesting spot on the chart. The 137.50 level is an important psychological level and it helped pull back further in March. It came in as resistance-turned-support after a few months and recently, it came to hold Friday’s high as it has been doing so far.

This coincides with 38.2% Fibonacci retracement The latest sell-off.

EUR/JPY Daily Chart

eurjpy daily chart

A chart is prepared James Stanley; EUR/ JPY in Trading View

S&P 500

Bear market bounces are quite common in sell-offs and are a common culprit.

The picture is very bearish but if someone is interested and wants to sell – who will push prices down? There must be action to create moves and if there are no interested sellers at current levels, the market is vulnerable to a squeeze. High moving prices eliminate unrealized profits from open shorts, thereby forcing more shorts to close, creating more buying pressure.

Before you know it, we have a bounce and the odds for perceived value can come as bullish movement begins to show. And then the trend can grow and grow, until eventually, the price moves to the point where sellers want to respond to the level that offsets that buying interest, and then some.

And if that moment doesn’t happen – we have a new bullish trend.

In stocks of late, oversold conditions in mid-June led to a strong pullback in US equities. And the degree to which that has happened has helped build the narrative around rates and the possibility that the Fed and the bottom are already there.

The question is whether we are at that point where sellers can come in to tip the scales back into bear territory. In the S&P 500, prices are constructed a Doji In the core sector resistance On the weekly chart last week.

S&P 500 Weekly Price Chart

SPX Weekly Chart

A chart is prepared James Stanley; S&P 500 in Trading View

S&P 500 futures opened new highs this morning, so bulls are still making a mark here.. The big question is, once again, whether we’re approaching a point where sellers want to take another shot at a bearish trend. The area I’m following this week is 4085, which is the 38.2% Fibonacci retracement of the 2022 selloff. It helped define last week’s low, and its breach makes the potential for bearish themes look more attractive.

S&P 500 Daily Chart

S&P 500 Daily Chart

A chart is prepared James Stanley; S&P 500 in Trading View

Nasdaq 100

Nasdaq has a similar context above. The index ran as the key tendency Last Friday, after which A Bear engulf is printed on the daily chart. Saw a lot of follow up from that this morning, but as I shared earlier this morning, there is a big circle Support as taken from prior resistance Sitting just below the current price. Last week’s low of 12,814 could be a key deciding factor for bearish themes, as its breach would come with a breach of the bottom of that support zone.

Nasdaq 100 daily price chart

Nasdaq daily chart

A chart is prepared James Stanley; Nasdaq 100 in Trading View

— Written by James Stanley, Senior Strategist, DailyFX.com & Head DailyFX Education

Connect with and follow James on Twitter: @JStanleyFX

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