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The single currency surged to $1.1832 after U.S. Federal Reserve Chair Powell told Congress the U.S. economy was "still a ways off" from levels the central bank wanted to see before tapering its monetary support. He reassured the market again that an inflation spike will be transitory.
Sterling plummeted to $1.3840 on comments from BoE Governor Bailey to reject the rush to make decisions on raising interest rates despite news of rising inflation, contradicting the previous day’s comments from Deputy Governor Dave Ramsden.
Yen soared to 109.85 on broad dollar weakness, waiting for Federal Reserve Chair to deliver his second of his semi-annual testimonies, this time to the Senate Banking Committee.
The Canadian dollar tumbled to 1.2540 against its U.S. counterpart on Wednesday despite the Bank of Canada reduced the scope of its government bond-buying program to a target of C$2 billion ($1.6 billion) from C$3 billion but held its key interest rates at 0.25%.
Aussie edged lower to $0.7464 this morning as the local unemployment rate also dropped in June, coupled with disappointing China's annualized GDP figures for the second quarter of 2021 arrived at 7.9%.
Rand recovered from a three-month low at 14.78 to 14.48 per greenback, on a fragile dollar, despite President Ramaphosa having to deploy more troops to reinforce the army and the police on Wednesday, curbing looting and violence in the country.
The local pair inched lower to 43(selling) driven by global dollar frailty.
10:00 - GBP - Average Earnings Index + Bonus
10:00 - GBP - Claimant Count Change (Jun)
16:30 - USD - Initial Jobless Claims
16:30 - USD - Philadelphia Fed Manufacturing
17:30 - USD - Fed Chair Powell Testifies
“ Its not that I am so smart. Its just that I observe the market longer. Patience is key to success.” - Anonymous
Policy statement from the US Federal Reserve certainly helped fuel a spike upwards in the USDJPY which topped exactly in the 110.80-111.00 resistance zone ( Based on our previous forecast on 28.05.21) before trimming most of its post Fed gains. What next?
The Bank of Japan kept its policy unchanged today and held its negative interest rate firm while also holding steady to its quantitative easing program in contrast with the FED. The special COVID program is also extended till March 2022. The lag in economic recovery has put institutions under stress , with BOJ responding that they will announce new loan measures in the near term.
The sudden burst of volatility and uncertainty will continue to prevail in the market in the coming sessions. The forex pair , hovering near critical values of 110.80-111.00, remains a key pivot in the near term. 110.80 marks a complete A-B-C corrections as per Elliott wave principle which coincides also with 100% Fibo Extension. A strong break and close above these levels could signal medium term buying in the USD amid breach of stop losses.
Shorts in USDJPY can be initiated in the region of 110.50-110.80 with a stop above 111 with targets towards 109 and 108 levels.