Greenback weakness temporary

The main theme in the FX space was US dollar weakness, as global growth concerns led some investors to believe the Fed won’t be in any rush to tighten.

Greenback
Source: Bloomberg

While growth has certainly been an issue of late, I feel this is exaggerated and it’s likely more just profit taking after recent gains. There were also some comments by Charles Evans, who continued to sound his dovish tone and highlighted the risk of global slack, as well as the fact a rising greenback is impacting progress towards their inflation goal. It is unlikely to have had a big impact, given he simply reiterated comments made recently.

USD/JPY could squeeze higher

USD/JPY has undergone one of the more interesting moves in recent sessions, with a massive unwind from early October highs. The pair traded through ¥110.00 on 1 October and dipped below ¥107.00 yesterday. Interestingly, USD/JPY bottomed at the 61.8% retracement of the August-to-October rally, which comes in at ¥106.80. This has sparked a bit of a recovery in Asia and the pair is trading back above the ¥107.00 level.

There is no major data out of the US today but the momentum seems to have turned mildly. There could be room for a bit of a squeeze higher in the near term. A recovery could potentially see the pair reach ¥108.00 (a 23.6% retracement of the recent rally).

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