The US dollar continues its move to the downside today despite the hotter US CPI and PPI reports this week. Treasury yields are also higher this morning, but the greenback is struggling to attract buyers.
In the morning video above, I take a look at the three major currency pairs—EURUSD, USDJPY and GBPUSD—from a technical perspective. For each pair, I outline the bias, the risk-defining levels and the targets that would give either the buyers or sellers more control.
The disconnect between the inflation headlines and the dollar’s direction is worth watching. Stronger inflation would normally offer support through expectations for tighter monetary policy. However, traders still need to see that fundamental story reflected in the price action. This morning, the dollar is mostly moving the other way.
Dollar lower against six of seven major currencies
The dollar’s largest decline is against the NZD, followed by the AUD. USDJPY is the exception, holding a marginal gain on the day even after retreating from its highs earlier this week.
From the dollar’s perspective:
Against the NZD: down approximately 0.82%.
Against the AUD: down approximately 0.56%.
Against the CHF: down approximately 0.50%.
Against the GBP: down approximately 0.49%.
Against the EUR: down approximately 0.34%.
Against the CAD: down approximately 0.23%.
Against the JPY: up approximately 0.02%.
AUDUSD is trading near 0.6958, rebounding after the weaker Australian employment report and yesterday’s fall.
The recovery is a reminder that the initial reaction to an economic release is only part of the story. Sellers need follow-through to keep control. When that selling stalls and the price starts recovering, traders need to reassess their risk.
Ueda keeps the weak yen and inflation in focus
Bank of Japan Governor Kazuo Ueda is on the wires saying policymakers are watching the weak yen in terms of inflation.
His other remarks indicate that the timing and pace of future rate increases will depend on developments including foreign exchange, AI-related demand and the Middle East. He described economic and price developments as broadly consistent with the BOJ’s forecasts and reiterated that financial conditions remain accommodative.
A weaker yen can raise import costs and add to domestic price pressures. That keeps the currency relevant to the BOJ’s policy decisions—and keeps traders sensitive to comments about further tightening.
USDJPY falls below its converged hourly moving averages
USDJPY moved higher earlier this week but fell just short of the September 24 high.
The buyers had their shot. They could not get through that prior peak, and the subsequent retreat has taken the price back below the nearly converged 100- and 200-hour moving averages near 158.23.
With the pair trading around 158.01, that moving-average area becomes the close risk for sellers.
Stay below 158.23 is more bearish and keeps sellers in control against that area.
Move back above—and stay above—and the downside break loses some of its significance.
On the downside, today’s low near 157.80 is the first reference point. A break below would extend the session’s range and give sellers additional confirmation.
(see video)
When the 100- and 200-hour moving averages converge, they create a relatively clear decision area. Traders can lean against that area with risk defined and limited. The next move is uncertain, but the level that would weaken the trading idea is identifiable.
Currency ranges: USDJPY has the most room to extend
The session ranges compared with the displayed 22-day average ranges show different conditions across the three major pairs:
EURUSD: 1.1209 to 1.1269 — approximately 60 pips, or 92% of its 65-pip average range.
USDJPY: 157.80 to 158.18 — approximately 38 pips, or 38% of its 101-pip average range.
GBPUSD: 1.1268 to 1.1349 — approximately 81 pips, or 111% of its 73-pip average range.
USDJPY has covered the smallest share of its average range, leaving the most room to extend relative to recent trading conditions.
EURUSD has completed most of a typical day’s range, while GBPUSD has already exceeded its average. That does not mean either pair has to stop moving. The average is a guide to the day’s activity, not a ceiling.
US stock futures are mixed
US futures show modest weakness in the Dow, a small gain in the S&P and a larger decline in the Nasdaq:
Dow futures: down 10.69 points.
S&P 500 futures: up 8.4 points.
Nasdaq futures: down 96 points.
The mixed performance leaves technology shares lagging heading into the North American session.
Treasury yields move higher
US Treasury yields are higher, with the longer maturities showing the larger increases:
2-year: 4.7571%, up 0.61 basis points.
5-year: 4.9166%, up 1.96 basis points.
10-year: 5.1103%, up 2.33 basis points.
30-year: 5.4518%, up 2.38 basis points.
The 10-year yield is back above 5.10%, but the rise in yields has yet to translate into broad dollar strength this morning. Despite the stronger PPI yesterday, yields moved lower. Go figure.
European equities mostly higher
Germany’s DAX: 25,585.68, up 0.80%.
France’s CAC 40: 7,951.61, up 0.21%.
UK FTSE 100: 10,830.91, down 0.09%.
Spain’s IBEX 35: 19,318.91, up 0.74%.
Italy’s FTSE MIB: 49,732.12, up 0.34%.
Gold, silver and Bitcoin edge higher
Gold is trading near $4,177.92, up approximately 0.17%. Silver is near $57.80, up approximately 0.74%.
Bitcoin is trading near $82,656, up approximately 0.64%.
What is ahead in North American trading?
The US calendar brings another inflation reading, followed by an update on industrial activity:
8:30 AM ET: September import prices.
9:15 AM ET: September industrial production and capacity utilization. Industrial production is expected to rise 0.4%, following an unchanged reading in August.
Import prices add another piece to the inflation picture after this week’s CPI and PPI reports. Industrial production will help show whether activity is holding up alongside those price pressures.
For the dollar, the reaction matters. Stronger data needs to attract sustained buying to change the current direction.
EURUSD: Buyers push toward the session high
EURUSD is trading near 1.1256, toward the upper end of its range. The session high near 1.1269 is the immediate upside reference.
A break above that high would extend the recovery. If buyers cannot get through, the focus shifts to whether they can maintain control on a rotation lower. In the video, I outline the technical support levels that help define that risk.
GBPUSD: An above-average move higher
GBPUSD is trading near 1.1338, close to its session high at 1.1349.
The pair has already exceeded its average daily range. That gives context to the size of the move, but it does not provide a sell signal by itself. Sellers still need a technical reason to enter, and buyers need to hold support to maintain control.
In the video, I define those decision points for GBPUSD and EURUSD, along with the important 158.23 moving-average area in USDJPY.
This article was written by Greg Michalowski at investinglive.com.
