DailyFX
Forex: Dollar Wedged Between 1.3400 and 1.3325, Awaiting Catalyst
John Kicklighter

  • Dollar Wedged Between 1.3400 and 1.3325, Awaiting Catalyst

  • Swiss Franc Posts Biggest Collapse in 14 Months, Is it Free?

  • Japanese Yen Drops but Recovers After Officials Says Collapse May be an Issue

  • Euro Most Overextended Currency of the Majors

  • New Zealand Dollar Posts Standout Rally after Data Mix

  • British Pound Awaits CPI for Update on Policy Bearing

  • Gold at Immediate Breakout Risk

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Dollar Wedged Between 1.3400 and 1.3325, Awaiting Catalyst

With risk trends struggling for consistency and Fed officials passing up the opportunity to offer a tangible shift in monetary policy, the dollar was a mixed bag Monday. The Dow Jones FXCM Dollar Index’s (ticker = USDollar) performance on the session was essentially a technical advance by the thinnest of margins. Turning away from the USDCHF and USDJPY (spurred on by counterparty fundamental catalysts), most dollar traders are keeping their gaze fixed on EURUSD. Aside from its authority as the Forex market’s most liquid pairing, this benchmark has shown the greatest degree of depreciation since last week and is arguably the dollar’s weakest point. In other words, if there is to be a recovery registered, it will be done so through this pair. However, if we want to break back below 1.3300, we may need to see the S&P 500 below 1,450.

Swiss Franc Posts Biggest Collapse in 14 Months, Is it Free?

While the Japanese yen and euro continue to stand out for their impressive performances, these two high-profile currencies would not put in for the most impressive performance for the day Monday. That title goes to the Swiss franc. Long ago relegated to the position of afterthought, this currency may once again deserve our attention. Since September 2011, the Swiss National Bank (SNB) has vowed to keep a floor of 1.2000 underneath EURCHF. Since April of last year, the pair had essentially flat-lined at that level. That meant that however euro traded against its third party crosses, the franc essentially did the same. That anchor started to loosen up in September of this past year, but has finally shown serious signs of a permanent departure from the imposed boundary. In fact, through early morning trading, EURCHF has rallied almost 300 pips in the span of less than four trading days. Monday’s rally alone was the biggest since November 7, 2011. That is serious.

Japanese Yen Drops but Recovers After Officials Says Collapse May be an Issue

The Japanese yen was already leveling off Monday, but the it made a concerted move higher during Tuesday’s Asian session. There is certainly weight behind a necessary correction of an immensely oversold currency – but as economist John Maynard Keynes said: ‘the markets can remain irrational longer than you can remain solvent.’ The yen’s tumble has been fully engaged and driven through most sensible arguments of being ‘oversold’. What changed? There was a potential crack that formed in the government’s otherwise unwavering vow to stimulate the currency to the ground. Economy Minister Amari broke rank and remarked that an ‘excessively weak yen’ has negative effects on Japanese. This is hardly a wholesale change in the policy line, but bulls are looking for a reason to take profit. A true retreat comes with risk aversion.

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