This rally is more about the New York Fed leader than Trump
The narrative today is that Trump's speech to Congress boosted confidence as he talked about a huge corporate tax cut and $1 trillion in infrastructure spending.
There's a grain of truth in that but it sells the Fed short.
Dudley's comments were a major signal that interest rates are going up on March 15. The implied probability in the Fed funds market is up to 82% from 50% yesterday.
USD/JPY climbed a full cent on Dudley at first but there were jitters ahead of Trump's speech and the pair pulled back 50 pips. It recovered during Trump's speech but barring anything shocking from Trump, I think that would have happened anyway.
Here's what I wrote right after Dudley's headline hit:
To me, this has the makings of a very tradable double bottom in anticipation of a return to 115 or above. With support just 100 pips below, it's very compelling on a risk-reward basis.
I think the market would be buying up dollars now if it wasn't worried about Trump but the US President is most-likely to be a cheerleader for the economy in a no-details speech and that will be enough to kick off the upside.
Now USD/JPY is catching a fresh bid now and testing 114.00. Watch for buy stops above.
