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EUR/USD gains limited while USD/CAD makes a reversal, and USD/JPY falls

EUR/USD gains limited at key resistance while USD/CAD makes a key reversal and USD/JPY fails at 200-day SMA.

US dollar price analysis and talking points

  • EUR/USD edges towards key resistance
  • USD/CAD makes a key reversal
  • USD/JPY fails at 200-day simple moving average (SMA)

Option markets point to muted session

Today’s session is likely to see major forex pairs trading in relatively narrow ranges with option implied volatility suggesting tame price action. Alongside this, sizeable vanilla option expiries may also curb volatility given that they can act as a draw in times subdued price action.

These expiries over the next two days are particularly evident in EUR/USD, GBP/USD and USD/JPY.

EUR/USD edges towards key resistance

The euro has made a notable turnaround following the Federal Reserve's (Fed) rate decision. Initially, the market had interpreted the decision as a hawkish cut, resulting in USD upside. However, this had quickly reversed after Chairman Jerome Powell stated that a rate hike would only take place if inflation rose significantly, thus setting a high bar for future rate hikes.

That said, EUR/USD is testing the 200-day SMA at $1.1171 and is trading at last weeks highs. Although, with risks still tilting to the downside in the eurozone and with trade war headlines dampening market sentiment, gains in the pair are somewhat limited above $1.12.

USD/CAD makes a key reversal

The Canadian dollar saw a notable drop following the dovish Bank of Canada (BoC) rate decision, in which the central bank removed its rhetoric that current rates remain appropriate, while also highlighting that Canada’s resilience is likely to be increasingly tested amid the global uncertainty.

Consequently, money markets made a sharp repricing of future easing from the BoC in 2020, prompting a key reversal in USD/CAD. As the pair made a close above $1.3145, risks are tilted towards further gains with the $1.32 handle in focus, particularly if risk sentiment deteriorates.

USD/JPY fails at 200-day SMA

Post the FOMC decision, USD/JPY traded above its 200-day SMA for the first time since the beginning of May. However, the pair had failed to make a close above this and subsequently proceeded to trend lower. Reports this morning that China do not see a long-term trade deal with President Trump has benefitted safe-havens, with USD/JPY back towards the ¥108.20-108.30 support.

Given the large option expiry at ¥108.00 further losses may be curbed in the near term, unless there is a further deterioration in risk appetite. As a reminder, the next key event is tomorrow’s Non-Farm Payroll (NFP) and ISM releases with the Fed outlook now increasingly data dependent.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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