Jerome Powell, the Chairman of the Federal Reserve, is giving a speech today. His remarks are likely to determine the long-term sentiment on the US dollar. Yesterday, the US dollar index reached a two-week low. The yen also lost 10% of its value. Is this a sign of a dramatic reversal?
Let’s find out!
On Wednesday evening, the US dollar index hit a one-week low, but today it slightly corrected up to the level of 92.350. This scenario was in line with our forecast, so the trajectory of the US currency did not come as a surprise. Mr. Powell is expected to make an important speech this evening. Additionally, investors are awaiting the release of US weekly jobless claims data. The preliminary forecast is slightly worse than last month's figure. A weak report may significantly affect the trajectory of the US currency.
There is a risk that the Fed may change its opinion on keeping interest rates near zero until 2024. The US bond market has stabilized this week. The yield on the 10-year US Treasury comes in at 1.6579%, down from a high of 1.776% reached at the end of March. This might be a signal of the greenback’s weakening. However, today, it is likely to be trading in the range of 92,250 - 92,500. Tomorrow, its movement will depend on the reaction of traders to Powell’s speech.
Meanwhile, in yesterday's video review, we expected the yen to decline to the target level of 108.40. Yet, the formed technical picture now suggests two options for the development of a downward scenario:
It may dip to the level of 109.37 with the continuation of the downward trend. The target level will be 108.40.
Or it could break above the level of 109.37 with an upward reversal. It means that a false breakout of the level will occur.
So, the current situation is uncertain but the yen is highly likely to move up. The target level remains the same -111.39, which is the peak of March 2019.
To avoid risks, we should wait for a clearer picture before opening any positions.
On Wednesday, the Australian dollar only approached the target level of 0.7665 with the upper shadow of the daily candlestick. At the end of the day, it formed a black candlestick of 48 pips.
Yesterday's candlestick eclipsed the two previous white ones at once. It means that bears are taking the upper hand. The first bearish target is the level of 0.7500, which is the low of December 2017. The Aussie is likely to weaken even more amid such a situation.