Dollar’s rally was took to a halt by Trump’s verbal interference on Fed’s policies. Trump criticized in a CNBC interview that “I don’t like all of this work that we’re putting into the economy and then I see rates going up.” And he complained that “because we go up and every time you go up they want to raise rates again … I am not happy about it.” Trump also added Fed’s rate hikes and strength of US Dollar are putting the US at a disadvantage. Though, he added that “at the same time I’m letting them do what they feel is best” and Fed chair Jerome Powell is a “very good man”.
There are criticism on Trump’s comments as being intervention on Fed’s independence. But so far, Powell has given enough confidence to the market of carrying out his job in a “strictly nonpolitical way”. What matters most to some economists is that Trump’s comments just do not make sense. The US economy is on course for near 4% GDP growth in Q2, lowest jobless claims in nearly 50 years and inflation at around target. The strength of Dollar is merely reflecting strong fundamentals.
And remember that Trump’s top economic adviser Larry Kudlow just said earlier this week that “it’s possible that a real growth cycle is in front of us for the next four, five or six years.” And, Kudlow added that “there’s no recession in sight.” So, is it time to remove monetary policy accommodation to, at least, bring interest rate back to “neutral’ level?
Dollar index edged through 95.53 resistance to 95.65 yesterday but quickly retreated. The rise from 88.25 should be resuming but momentum is no convincing yet. As long as 93.71 support holds, we’d expect further rally to 61.8% retracement of 103.82 to 88.25 at 97.87. However, a break of 93.71 will indicate a deeper and lengthier correction is underway.
Yen higher as markets turn risk averse, USD/JPY in lengthier consolidation
Yen trades broadly higher today as markets turn into risk aversion mode. Major US indices ended in red overnight, with DOW down -0.53%, S&P 500 down -0.40% and NASDAQ down -0.37%. Selloff continues in Asia with Nikkei trading down -0.64% at the time of writing, HK HSI is down -0.56%, and China SSE composite is also down slightly by -0.12%. Singapore Strait Times continue to defy gravity, though, and is up 0.48%.
USD/JPY dropped sharply after hitting 113.17 and the breach of 112.21 support suggests short term topping, on bearish divergence condition in 4 hour MACD. Deeper pull back is now in favor and the consolidation could last longer even though for now, downside is expected to be contained by 111.39 resistance turned support. In our weekly report, there was a position trading strategy of buying USD/JPY on dip to 111.85 retracement level. That was not filled before USD/JPY’s break of 112.79. We’ve cancelled this order and we’re now waiting for a deeper pull back to go long. Stay tuned.