September 25, 2022

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US Dollar and Related Market Outlook Stay tuned for Jackson Hole

The currency markets have been relatively calm over the past 48 hours. Awaiting the Jackson Hole National Economic Conference on Friday, market liquidity has been tight this summer.

There is unlikely to be a “whatever it takes” hawkish moment, mirroring the position of former Federal Reserve Chairman Paul Volcker. However, if Fed Chair Powell’s recent comments are consistent with those of other Fed members, it could help defuse the “Fed Change” that emerged after the FOMC meeting in July. The major US dollar pairs have been trembling, which could lead to volatility, but no apparent new directional bias.

After falling last week, the DXY has recovered this week to reach its highest levels in the year. The dollar index is consolidating in an ascending triangle, indicating that there is still room for an upward breakout to new yearly highs.

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DXY is above bullish exponential moving averages (EMA) at 5, 8, 13 and 21 days, which maintains the upward sequence of the momentum structure. The daily MACD is rising above its signal line, while the daily slow stochastic is in the overbought territory. If the gold price ends the week at the level of 109.29 or higher, this will indicate that the consolidation phase is over and the next bullish phase is about to begin.

After breaking above the swing highs in early July, the USD/JPY pair has recently stalled, seemingly unable to determine whether to break above or below the trend line. If prices continue to rise from here, we will see a yearly high at 139.39, while a pullback below the July swing highs will bring focus back to the uptrend line from the March and August swing lows, which are now at 133.00.

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We tend to think the opposite of mass; So the fact that traders are clearly selling USD/JPY currency pairs is a bullish sign.

In terms of positioning, we are shorter than yesterday but shorter than last week. Given the current mood and developments, we have more of a mixed trading bias for the USD/JPY pair.