US Dollar Gains Momentum Amid Rate Hike Expectations

The first half of the year was rather choppy for the US dollar as massive bets of weakness were scaled down. Many on Wall Street expected the dollar to weaken as most of the other major currencies were about to deliver significantly more tightening. Regional growth rotations on an improving outlook from a roaring Chinese economy were also supposed to support the case for strengthening commodity demand.

The dollar might be positioned for a little more short-term strength here as the odds for more rate hikes have steadily increased while rate cut bets get pushed into next year. The Fed’s higher for longer stance on rates seems to slowly be winning over some traders.

Macro traders will undoubtedly be following the NFP report, but may fixate over next week’s inflation report. We could actually get a soft report that gives us a headline 2.9% year over year reading. The June inflation report might be a short-term bottom for the disinflation process as the base effects will be responsible for a large part of the decline. By the end of summer, inflation might prove to be sticky given the current drivers, which includes economic resilience, a strong labor market, and decent spending.

USD/JPY

Sell signals are emerging and intervention talk is brewing given we are at levels that triggered Japanese intervention last year. Many yen traders are focused on the 145.50 region and the 143.75 level. Technical traders that follow DeMark indicators are eyeing a potential sell countdown, which would require a drop below the 143.90 level. If prices closed above the 145.51 level, further upside could target the 150 zone. Last year, the Demark countdown finished in mid-July and it soon saw an over 6% drop.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.