In my previous piece a couple of days ago, I was too early in painting a picture of general market indifference to the testimony before Congress of the new Federal Reserve Chair Jerome Powell. He tried to pitch a careful and optimistic tone, which initially seemed to work, yet after a few hours went by markets turned largely fearful. Since then, stocks have been broadly selling off, while safe-haven assets such as the Japanese Yen and, to a lesser extent, the U.S. Dollar, have gained. This tone has persisted, and it is interesting that even precious metals (including Gold) and the Swiss Franc have not benefited, while the biggest losers have been the commodity currencies and the British Pound. Powell will testify again later today, and this is going to be a keenly watched event, as we are also getting some end/start of month flows which are causing movement.
So, that is sentiment covered, but how does it tie in with long-term trends? The EUR/USD and GBP/USD are in long-term bullish trends, against the prevailing sentiment and strong market movements. The standout major Forex currency pair is USD/JPY, which is in a long-term bearish trend and also aligned with the current sentiment that places the Japanese Yen as the strongest of all major currencies. The difficulty with the short USD/JPY trade is twofold: first, there is very strong support at 106.00 and at 105.50; second, the U.S. Dollar is also strong, so is not ideal as the short side of any trade. That said, the long-term price chart isn’t showing a very bullish picture, so the longer the price consolidates above 106.00 while failing to rise, the more explosive an eventual break down below 106.00 could be. It is for this reason that I am keeping an eye on the USD/JPY and being ready to trade it short if it starts to break down convincingly and with a more volatile than usual movement.