Narrative Switch: What 15 minutes of market reactions teach traders about which pair to trade
Premium|Take advantage of 50% OFF on your first month.
Start your subscription and get access to all our original articles.
You have reached your limit of 5 free articles for this month.
Get Premium without limits for only $9.99 for the first month
Access all our articles, insights, and analysts.
UNLOCK OFFER- The US dollar has initially reacted negatively to an adverse economic figure.
- A miss on a second figure has already triggered positive responses, boosting the safe-haven dollar.
- USD/JPY has been the sole pair to offer a straightforward response.
The US dollar has dipped but has also swiftly recovered on a rapid narrative switch – and that is a lesson for how volatile markets can be, and why USD/JPY is the best pair to trade around US events.
*Note: This content first appeared as an answer to a Premium user. Sign up and get unfettered access to our analysts and exclusive content.
What happened? The S&P Services PMI missed estimates, showing slower growth in America's largest sector. While it continued showing growth, the score of 53.5 was substantially lower than 55.1 expected or 55.6 in the previous read.
The first narrative that dominated markets was that this weakness means the Federal Reserve would be in less of a hurry to raise rates, as weaker demand means cooling inflation. The US dollar dipped across the board. EUR/USD, GBP/USD, USD/JPY, AUD/USD and gold all went against the dollar.
Only 15 minutes later, US New Home Sales also missed estimates with 591K annualized vs. 751K projected, another substantial miss in a usually unnoticed indicator.
However, that already triggered a switch in the narrative. Stocks that had already dipped due to Snap's earnings, accelerated their decline and the sour market mood led investors to seek the safety of the US dollar. EUR/USD, GBP/USD, AUD/USD, gold and others decline.
The only standout was USD/JPY – it just continued falling. Why? This currency pair is well-correlated with US events via yields. US 10-year Treasuries fell in response to both figures and this currency pair followed.
What we learn
First, narratives can change quickly in markets, especially when liquidity is lower than it used to be. Central banks are withdrawing stimulus, which means more "air pockets" and additional volatility. The lesson for traders is to place wider stops, wider take profit points and risk a smaller portion of their accounts.
Second, when trading US events, it is best to stick to USD/JPY. It tends to have the best reaction. The currency pair used to be boring, but that belongs to the past.
USD/JPY Technicals
The Japanese yen is also a safe-haven asset. After breaking below 127, it kept on falling toward the bottom of the downtrend support line and toward the next cushion at 126.20. Further down, only 125 is a noteworthy support line. Resistance is now at 127, followed by 127.60.
- The US dollar has initially reacted negatively to an adverse economic figure.
- A miss on a second figure has already triggered positive responses, boosting the safe-haven dollar.
- USD/JPY has been the sole pair to offer a straightforward response.
The US dollar has dipped but has also swiftly recovered on a rapid narrative switch – and that is a lesson for how volatile markets can be, and why USD/JPY is the best pair to trade around US events.
*Note: This content first appeared as an answer to a Premium user. Sign up and get unfettered access to our analysts and exclusive content.
What happened? The S&P Services PMI missed estimates, showing slower growth in America's largest sector. While it continued showing growth, the score of 53.5 was substantially lower than 55.1 expected or 55.6 in the previous read.
The first narrative that dominated markets was that this weakness means the Federal Reserve would be in less of a hurry to raise rates, as weaker demand means cooling inflation. The US dollar dipped across the board. EUR/USD, GBP/USD, USD/JPY, AUD/USD and gold all went against the dollar.
Only 15 minutes later, US New Home Sales also missed estimates with 591K annualized vs. 751K projected, another substantial miss in a usually unnoticed indicator.
However, that already triggered a switch in the narrative. Stocks that had already dipped due to Snap's earnings, accelerated their decline and the sour market mood led investors to seek the safety of the US dollar. EUR/USD, GBP/USD, AUD/USD, gold and others decline.
The only standout was USD/JPY – it just continued falling. Why? This currency pair is well-correlated with US events via yields. US 10-year Treasuries fell in response to both figures and this currency pair followed.
What we learn
First, narratives can change quickly in markets, especially when liquidity is lower than it used to be. Central banks are withdrawing stimulus, which means more "air pockets" and additional volatility. The lesson for traders is to place wider stops, wider take profit points and risk a smaller portion of their accounts.
Second, when trading US events, it is best to stick to USD/JPY. It tends to have the best reaction. The currency pair used to be boring, but that belongs to the past.
USD/JPY Technicals
The Japanese yen is also a safe-haven asset. After breaking below 127, it kept on falling toward the bottom of the downtrend support line and toward the next cushion at 126.20. Further down, only 125 is a noteworthy support line. Resistance is now at 127, followed by 127.60.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.