USD / JPY bogged down by yields, PMI flash expires

USD / JPY PRICE OUTLOOK: STRONG PMI DATA COULD BOOST YIELDS AND THE DOLLAR

  • US dollar declined on Thursday and helped the DXY Index reverse its -0.3% decline
  • USD / JPY price action weakened as Treasury yields struggled to extend their rally
  • Flash PMIs scheduled for release tomorrow could influence risk trends ahead of the FOMC
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US dollar bulls and bears battled for directional control during Thursday’s trading session only to see DXY close practically flat. US dollar overall weakened to -0.3% at its intraday lows, which appeared to follow downward pressure on Treasury yields that followed disappointing weekly jobless claims data.

This dragged USD / JPY down 17 pips during the session. ECB Decision also weighed on the US dollar, albeit indirectly, and the EUR / USD price action accounted for 57.6% of the DXY index’s performance. That said, markets may be considering the risk of imminent events posed by the release of flash PMIs on Friday, July 23, looking for clues as to where the US dollar is heading.

DXY – US DOLLAR INDEX PRICE CHART: DAILY HOURS (FEBRUARY 19 TO JULY 22, 2021)

Chart for @RichDvorakFX created using TradingView

Better-than-expected US PMI data could see the dollar rally further, particularly if the employment and inflation components show signs of strength. This is considering strong economic data to keep the focus on Federal Reserve officials regarding their timing to reduce asset purchases. On the other hand, if flash PMIs recede below forecasts, we could see the US dollar gravitate lower as markets relax further by betting on the Fed’s decline.

USD PRICE OUTLOOK – IMPLIED VOLATILITY TRADING RANGE IN US DOLLARS (OVERNIGHT)

It should be noted that overnight Implied Volatility the US dollar readings seem rather off. This suggests that markets may remain volatile tomorrow, which is a scenario that could be strengthened by relatively online flash PMI data. Looking forward to the week in our Economic Calendar, however, we see that the Fed is expected to make a decision on rates on Wednesday, July 28 at 18:00 GMT.

This could cause the implied volatility measures to increase in future trading sessions. So it’s probably wise to stay nimble. Also, in light of this backdrop, I’ll be watching Treasury yields closely on Friday and over the next week as a potential signal for the direction of USD / JPY price action given their generally strong direct relationship. .

– Written by Rich Dvorak, DailyFX.com Analyst

Connected to @RichDvorakFX at for real-time market information

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