FX analysis – USD up on rising yields, EUR down on dovish ECB, JPY surges ahead of BoJ

US equity markets snapped a record-breaking run of up sessions in Thursdays trading, with the Dow Jones looking set to close in the green for a 14^th straight session (for the first time since the Dow’s inception), before seeing a sell-off on rising yields after a report that the BoJ is looking to tweak their YCC at their meeting today.

FX Markets

USD bounced back from its post-FOMC weakness with the Dollar supported by rising US Treasury yields after beats in US GDP and employment data and the aforementioned hawkish report regarding the BoJ. US 10yr yields surged over the 4% level, an area recently that has marked the top in yields. With Powell stressing that the Fed would be “data dependent” going forward as to rate increases the hot US data saw traders shifting hawkishly on rates, this saw the US Dollar Index surge through the 101 level, hitting 2-week highs and looking to test the major resistance at 102. Todays PCE Index figure  will be another piece in the Fed puzzle, and is likely to move the USD and yields on it’s release.

EUR pushed higher early in the session until the ECB meeting where the market took comments from President Lagarde as dovish, seeing EURUSD hit a low of 1.0967, breaking through the support at 1.10 , holding below with 1.10 now looking like resistance.. The ECB did hike rates 25bp as expected but it was Lagarde’s comments that she does not believe that more work needs to be done, given the current data, implying future meetings could be a hike or a hold, that saw EUR moving. Later today, some key German inflation figures will be released, EUR volatility should be expected.

JPY saw big gains on Thursday, with USDJPY sliding from highs of 141.31 to hit a low of  138.75 after reports in Nikkei that the BoJ are to discuss a YCC tweak at today’s pivotal monetary policy meeting.  Noted however, similar rumours have been reported on in the recent past, so really nothing new. The overreaction in JPY shows how jittery FX traders are going into today’s meeting, it is likely we’ll see some big moves in the Yen in today’s session as well, whichever way the BoJ goes.

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