US Greenback Outlook:

• The US Greenback (by way of the DXY Index) continues to cope with its pandemic trendline, a magnet for value motion all through February.
• The January US sturdy items orders report on Thursday and the January US inflation fee (PCE) report on Friday are the highest information releases within the coming days, whereas Fed Chair Powell’s testimony on Capitol Hill will convey the standard fireworks.
• The IG Shopper Sentiment Indexmeans that USD/JPY has a bearish bias.

US Greenback On the lookout for Course

The US Greenback (by way of the DXY Index) continues to cope with its pandemic trendline, a magnet for value motion all through February. Potent catalysts are few and much between over the approaching days, with the January US sturdy items orders report due on Thursday and the January US inflation fee (PCE) report due on Friday. There’s little else (data-wise) that can assist outline value motion past the weekly US jobless claims figures.

In the meantime Fed Chair Jerome Powell’s testimony on Capitol Hill will convey the standard commentary from latest public appearances: he’ll posture for extra fiscal stimulus, and he’ll downplay inflation threats.

Federal Reserve Curiosity Charge Expectations (February 22, 2021) (Desk 1)

In delivering the semi-annual Financial Coverage Report back to Congress, the Fed Chair could be very doubtless to make use of his time on Capitol Hill to appease considerations that the rise in US Treasury yields is foreshadowing harrowing ranges of inflation. Fed Chair Powell might very effectively acknowledge that inflation might rise, however the Fed appears poised to ‘look by’ any uptick within the near-term.

Even because the US Treasury yield curve has steepened over the previous month, market contributors don’t foresee any acceleration within the Fed’s efforts to normalize coverage (96% likelihood of no change by finish of 2021).

Learn extra: Weekly Elementary US Greenback Forecast: Mr. Powell Goes to Washington

Atlanta Fed GDPNow 1Q’21 Development Estimate (February 18, 2021) (Chart 1)

Based mostly on the info obtained to date about 1Q’21, the Atlanta Fed GDPNow forecast is searching for development at +9.5% annualized. The estimate has risen sharply in latest weeks, from +4.5% in early-February, bolstered by a a lot better than anticipated January US retail gross sales report.

The following 1Q’21 Atlanta Fed GDPNow forecast shall be launched on Thursday, February 25 after the January US sturdy items orders report (which has an opportunity to shock to the topside just like the aforementioned retail gross sales report).

DXY PRICE INDEX TECHNICAL ANALYSIS: DAILY CHART (February 2020 to February 2021) (CHART 2)

The DXY Index is barely holding above the downtrend from the March and November 2020 highs, however draw back stress has been pronounced amid a three-day dropping streak.

A contemporary low was set for February firstly of the week, confirming the collection of decrease highs and decrease lows all through the month. Breaking the late-January swing low at 90.05 would counsel a false bullish breakout and a deeper setback more likely to emerge.

Bearish momentum is gathering tempo. The DXY Index is beneath its every day 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Day by day Sluggish Stochastics are dipping again into oversold territory, whereas every day MACD is trending decrease beneath by its sign line.

A drop again beneath the March and November 2020 downtrend – the pandemic trendline – could be a major technical setback for the DXY Index (89.75 on the finish of the week).

USD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (February 2020 to February 2021) (CHART 3)

At the same time as US Treasury yields have surged larger in latest days, USD/JPY charges haven’t adopted; that is atypical. It’s much more atypical contemplating how robust the Nikkei 225 has been in latest weeks. Extra on that at one other time, although.

To an extent, rising US yields might stem a major drop within the pair, significantly as USD/JPY approaches the rising trendline from the intrayearly swing lows. The latest advance in USD/JPY was rejected on the underside of the rising trendline from the March and September 2020 lows, itself a magnet for value motion all through November and early-December 2020.

Extra consolidation could also be forward for the pair even within the occasion of a rebound, because the descending trendline from the June 2015 and September 2018 highs is available in overhead simply above 106.00 by March 2021.

But when USD/JPY had been to lose the intrayearly uptrend within the coming days, even towards the backdrop of upper US yields, then merchants might wish to be on alert for a breakdown within the DXY Index.

IG Shopper Sentiment Index: USD/JPY RATE Forecast (February 22, 2021) (Chart 4)

USD/JPY: Retail dealer information exhibits 62.50% of merchants are net-long with the ratio of merchants lengthy to brief at 1.67 to 1. The variety of merchants net-long is 16.98% larger than yesterday and a pair of.11% decrease from final week, whereas the variety of merchants net-short is 2.39% larger than yesterday and 15.20% decrease from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests USD/JPY costs might proceed to fall.

Merchants are additional net-long than yesterday and final week, and the mixture of present sentiment and up to date adjustments provides us a stronger USD/JPY-bearish contrarian buying and selling bias.

— Written by Christopher Vecchio, CFA, Senior Forex Strategist