Talking Points:
- USDOLLAR Index rebounding as Brainard's dovish speech - in line with her previous remarks - is digested.
- Increasingly looking like a 'hawkish hold' in September, 25-bps rate hike in December.
- As market volatility is set to rise with summer ending, it's a good time to review risk management principles.
Another quiet day on the US economic calendar is ahead of us, with no significant data due in actuality before Thursday's retail sales report. The end of this week brings about two important releases, the August US Advance Retail Sales report on Thursday and the August US Consumer Price Index on Friday, which, in tandem, could rile markets up a few days before the September 20-21 FOMC meeting.
The truth is, however, it's unlikely that either print musters enough of a positive surprise that would dramatically alter the landscape just four days before the FOMC meeting. If yesterday's speech from Fed Governor Lael Brainard was a litmus test, then it's clear the voting doves on the FOMC aren't ready to hike rates yet; we'll stick to our call for a 'hawkish hold' next week, with a 25-bps rate hike coming in December (because after forecasting up to four rate hikes this year, the Fed needs to save face, at a minimum).
While the USDOLLAR Index deals with Fed rate expectations rattling around - December 2016 odds are down to 54% today from 56% yesterday, pre-Brainard - individual components of the aggregate offer clearer opportunities. AUD/USD and GBP/USD, in particular, are both in the neighborhood of multi-week or multi-month support trendlines that, if broken, could signal the next wave of greenback strength.
Concurrently, with Crude Oil meandering lower once again, an opportunity has emerged for USD/CAD to clear a significant resistance area in C$1.3145/255. With daily MACD and daily Slow Stochastics starting to improve their bullish profiles, near-term targets on a break higher may be eyed near C$1.3295 and C$1.3400. A close below C$1.2820 would negate this view.
See the above video for a technical review of the USDOLLAR Index, EUR/USD, GBP/USD, AUD/USD, USD/JPY, and USD/CAD.
Read more: Risk Starts Week Lower as USD, JPY Gain Traction
--- Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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