Forex Video Briefing (7/15) – Reactions to Yellen, EUR/USD, GBP/USD, USD/JPY and USDX
The USD/JPY whipped down to 101.43 before pushing to a new high on the week around 101.75. This rally is simply a correction against last week’s downswing, and against a general bearish trend that started in June. It will be interesting to see how USD/JPY will react to 102 if it rallies to that point. Around 102, there will also be a falling trendline from June. If USD/JPY can push above 102 after part 2 of the congressional testimony tomorrow, the USD/JPY will expose the June highs around 102.80, as well as the 103 handle. Otherwise, below 102, pressure remains toward the 100.75-85 lows on the year.
The EUR/USD came into today’s event risk with a bearish bias. After Janet Yellen’s QA session, the pair fell below last week’s 1.3580 low, and open up the 1.35-1.3520 June lows. Yellen did not seem concerned about the weak Q1 growth rate, and if she does not mention this concern tomorrow, the EUR/USD should continue to pressure the 1.35 area down to the 1.3475 low on the year. However, without some assurance that the rate time-line won’t be pushed beyond mid-2015, the EUR/USD will likely find at least some short-term support above 1.3475.
GBP/USD was bullish ahead of Yellen’s testimony. Strong UK inflation data for June, at an annualized 1.9% increase in the CPI, suggests there is room for the Bank of England to raise rates in 2014. The GBP/USD made a new high on the month and year, tagging 1.7191. However, the USD strengthened and GBP/USD is pulling back into the broken consolidation. If price can stay north of 1.71, the bullish outlook remains valid. However if price reverses today’s bullish candle after tomorrow, we should be expecting a period of consolidation/bearish correction.
The USD Index shows a bullish reaction in the greenback against a basket of currencies. The 4H chart shows a market that was bearish in June, but has been in a bullish correction in July. It will be interesting to see how USDX reacts if it rallies toward a common pivot around 80.70. Without a hawkish Janet Yellen, this 80.70 area can provide resistance, especially since July’s bullish price action would have completed an ABC correction pattern against July’s dip. If the USDX can start holding above 80.35 pivot, the bullish continuation scenario is in play. Otherwise, after the ABC correction, we might simply be in a larger scale consolidation, as you can see in the daily chart.