The dollar looks in a much better place after Fed members come to the rescue
That was a contrasting day if ever we've had one. From looking like the sick dog of the pack, USDJPY suddenly had reason to get off of its sick bed. While we were all watching for Trump, Fed speakers came in and laid down some very hawkish comments for a March hike.
Adam had already noted the recent spike in hike odds, as determined by the Fed funds futures, and they've since gone into orbit. Yesterday they stood at 52% and today they're at 80%.
Implied March Fed hike hopes
I've just read through the Trump speech and although it's lacking on details, it's yet another bullish message from Trump. Whether you like him or not, he's saying the right things. However, we still haven't come to the details and that's still going to be key. It looked like the market was ready to punish Trump for that lack of detail before his speech yesterday but it seems that the market is willing to give him a bit more time now. Dollar bulls are back on the hike bandwagon and are ready to give Trump a bit more leash to deliver the intricacies of his plans.
To the dollar itself and USDJPY. Once again we've seen another fast switch in sentiment. It's a healthy reminder that while ours and the market's attention can be focused one way, we can be hit with something from another direction that completely changes the landscape in an instant. Welcome to trading.
USDJPY is now looking for resistance levels to attack, not support levels. The first is up at 113.75/85, which has been an area that's seen a lot of action this year, and a bit further back than that too.
USDJPY H4 chart
Should we move above there, and there's every chance we might when the yanks open up, 114.00 will be next, followed by the 100 wma at 114.16 and 114.35/45. Above that, the 55 dma perches at 114.72. The bigger levels still sit from 115.00 to 115.60.
The main support area I see here is down at 113.30/35. 113.00 needs to be considered but 112.70/80 looks a bit stronger on the lower timeframes.
How long this new sentiment lasts is anyone's guess but I would expect the bias into the March Fed meeting to be bullish from now. A rate hike on it's own in March isn't worth 1000's of pips but if the Fed do hike, then the market will start believing that several hikes this year are a real possibility, and that's something that will carry the dollar much higher over the months ahead.
I've been touting rally selling in this pair this year, and while I'm not going to change that view just on yesterday, I 'm fully aware the tide may be changing, at least in the short-term. As always, the price action will be my guide and I'll be watching the bigger levels on the charts for those indications.
