Muted USD Action for Now

The US Dollar looks to have fallen into limbo on the back of the FOMC last week. On the one hand, a pause in tightening from the Fed has seen USD weaken on the view that this pause might extend now indefinitely, marking the end of Fed tightening. However, with the Fed warning that further tightening might still be necessary, yields are rallying and as such the fall in USD has been stemmed. Looking ahead, the market will be keenly monitoring any clues which might suggest how the Fed is likely to act at the next meeting. Hawkish comments, or stronger than expected data (particularly wage and inflation) will likely feed into a fresh drive higher in USD while any softer data or comments supporting a further pause should see USD weaken again.

Fed on Watch

Looking ahead this week, there is plenty to keep an eye on with Fed chairman Powell testifying at the US Senate Banking Committee tomorrow. Additionally, we have Fed’s Cook, Jefferson and Goolsbee on deck also as well as Fed’s Williams due later today. This raft of Fed commentary is likely to give a strong insight into the chances of a further pause in July and as such should see plenty of movement in USD.

Technical Views

USDJPY

The rally in USDJPY has stalled for now into a test of the 142.21 level. Momentum studies have flattened, suggesting room for a pullback here. However, while price remains above the 138.03 level, the focus is on a further push higher within the bull channel and a test of 145.00 next.