Article by: ETO Markets
The forex market this week has been dominated by a combination of Fed policy expectations, Donald Trump's policy impact and US economic data. Fed Governor Dr. Adriana Kugler said inflation pressures had eased, but stressed the need for more data to justify a rate cut. The market interpreted this as a cooling of expectations for interest rate cuts in the short term, but Powell's mention of inflation is expected to achieve the target and supported expectations of future interest rate cuts. This policy uncertainty has intensified market volatility, and investors' confidence in the dollar has been affected.
Donald Trump, in a meeting with House Republicans, voiced support for tax cuts, lower interest rates and higher tariffs, measures that could inflate the economy and weaken the dollar. In addition, Trump warned Federal Reserve Chairman Jerome Powell not to cut interest rates before the November presidential election, but also said he would allow Powell to complete his term if re-elected. The statement added to market uncertainty, which could weigh on the dollar and drive demand for safe-haven assets.
On the economic front, U.S. retail sales were largely in line with expectations in June, with retail sales holding steady at $704.3 billion, showing resilience in consumer spending. The data failed to significantly boost the dollar as markets were more focused on the Fed's future policy path. Taken together, the market's focus on future Fed policy and the political environment will continue to dominate the FX market, and investors will need to pay close attention to relevant data and policy moves
The dollar/yen (USD/JPY) has been volatile on multiple factors this week. Currently, the pair is trading around 158.40 and the daily chart shows it is below the 9-day exponential Moving average (EMA) with a downside trend in the short term. However, speculation that the Japanese authorities may intervene to support the yen limited the downside for USD/JPY.
Japan's trade data unexpectedly showed a surplus, but exports and imports grew less than expected, a sign of economic weakness that prompted the Bank of Japan (BoJ) to maintain its current policy, which weighed on the yen. Meanwhile, on the U.S. front, hawkish remarks from Fed Governor Dr. Adriana Kugler boosted the dollar. She said it would be appropriate to keep rates on hold if data did not confirm that inflation was moving toward the 2 percent target.
Technically, USD/JPY faces resistance at the 9-day EMA of … and the lower boundary of the uptrend channel of …, while the psychological level of … and the June low of … are downside support. Market participants will need to pay close attention to future economic data and policy developments.
The Australian dollar strengthened slightly in the Asian session on Thursday, supported by Australian jobs data. Official data showed employment increased by 50.2K in June, above expectations of 20.0K. However, the unemployment rate ticked up to 4.1%, slightly higher than estimates and the previous reading of 4.0%. This has increased expectations that the Reserve Bank of Australia (RBA) may raise interest rates again in the future. However, headwinds in the Chinese economy and falling copper prices have limited the upside of the Australian dollar. At the same time, the recovery in demand for the US dollar has further limited the Aussie's gains against the US dollar, which rebounded from near four-month lows, attracting some buying.
Technically, AUD/USD has formed a bearish upward wedge on the daily chart. The current price has rebounded above …, but the oscillators are showing a negative trend, which suggests that the recovery may fade soon. In the short term, the price may encounter selling pressure near the mid …, but if there is follow-on buying, it may push the price back to the … mark, or even last week's multi-month high. However, a strong downside break above the … round number and support at the 50-day Simple Moving Average (SMA) at … could trigger further selling pressure.
