USD on Cusp of Breakouts vs. AUD, EUR, JPY as FOMC Meets
- USDJPY starts to poke through ¥123.70/90 resistance zone.
- AUDUSD loses symmetrical triangle support, breaks lower.
- See the June forex seasonality report.
Today's FOMC meeting is critical to the US Dollar's chances of breaking out higher. Undoubtedly, in recent weeks the greenback has lost some of its mojo, by and large due to the state of the US economy after a dismal Q1'15 performance. In turn, concern among policymakers since the March 18 FOMC meeting has led many to believe that the Fed may not raise rates at all in 2015.
The US Dollar only benefits today if the Fed leans into the pessimism about the US economy and instead focuses on the improved consumption, housing, and jobs data for April and May that, in aggregate, suggest a more normal pace of growth in Q2'15. The Atlanta Fed's GDPNow model forecast for real GDP is now +1.9%, after touching +2.0% earlier this week. While not outstanding, growth around +2.0% would be a step in the right direction for the US economy, and would perhaps be agreeable with the notion that the Fed would need to raise rates later this year as growth reaccelerates.
When looking at the broad USDOLLAR Index, it appears that the greenback is on stable footing, maintaining a very short-term symmetrical triangle on the H4 timeframe. However, it's important to distinguish among the components of the USDOLLAR Index, as their behavior is not uniform. For example, with the British Pound as the top performer on the day, GBPUSD has staged a respectable rally; Australian Dollar and Japanese Yen weakness have allowed AUDUSD and USDJPY to move lower and higher, respectively.
As you examine the charts for trade setups ahead of today's FOMC meeting, the pre-meeting strong/weak performance sheds some light on where to expect out/underperformance depending upon the outcome of the meeting: if the FOMC provokes a weak US Dollar, long GBPUSD is primed; if the FOMC meeting provokes a strong US Dollar, short AUDUSD or long USDJPY are favored.
See the above video for technical considerations in EURUSD, AUDUSD, GBPUSD, USDJPY, and the USDOLLAR Index.
--- Written by Christopher Vecchio, Currency Strategist
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