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US Dollar Up as FOMC Meeting Nears, Consumer Confidence Data Eyed

US Dollar Up as FOMC Meeting Nears, Consumer Confidence Data Eyed

Ilya Spivak, Head Strategist, APAC

US DOLLAR, CONSUMER CONFIDENCE, FOMC, CHINA, STOCKS – TALKING POINTS:

  • US Dollar perks up as the FOMC rate decision draws closer
  • Conference Board consumer confidence data eyed near-term
  • AUD/USD downtrend may be resuming, sub-0.73 move next?
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A dour mood has spread across global financial markets late into the Asia-Pacific trading session. Regional shares shed over 1 percent on average, with deep losses in China driving the rout. The benchmark CSI 300 index of mainland issues shed a hefty 3.5 percent. Hong Kong’s Hang Seng Index lost 4.8 percent.

The news-wires cite worries about a regulatory clampdown from Beijing, and given recent events, there is perhaps some merit there. However, such influences are rarely reliable as drivers of lasting trend development. Rather, the markets’ responsiveness to them often speaks more to how they fit into the macro story.

Beginning today, the markets are entering the orbit of the FOMC monetary policy announcement. Traders will be keenly focused on the central bank’s use of forward guidance to push back against the build-up of inflation expectations. Even a whiff of hawkish escalation has potential to send markets scrambling.

Today will bring a bit of stage-setting with the release of the Conference Board’s gauge of US consumer confidence. Analogous data from the University of Michigan warned that rapid reflation is already a headwind for activity to some extent. Today’s release may offer some independent confirmation.

Such a result might spook investors as they ponder the challenging path that the Fed will need to navigate to protect the fragile economic recovery both from and in spite of a rapid rise in prices. The US Dollar is likely to find outsized strength against sentiment-geared commodity currencies in this scenario.

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AUD/USD TECHNICAL ANALYSIS – AUSSIE DOWNTREND READY TO RESUME?

The Australian Dollar may be set to resume the downtrend against its US counterpart after retesting support-turned-resistance in the 0.7384-0.7413 area. The first layer of significant support lines up in the 0.7222-44 zone. A daily close below that may set the stage for prices to make good on a bearish Head and Shoulders pattern started at the beginning of the year. It implies a run down to 0.7120-30.

Establishing a foothold above the 0.7413 seems to be a pre-requisite for neutralizing immediate selling pressure. That might begin a recovery that puts the 0.76 figure within buyers’ reach. A clear-cut invalidation of the near-term downtrend is needed to draw firm conclusions however.

AUD/USD daily chart

AUD/USD daily chart created with TradingView

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--- Written by Ilya Spivak, Head Strategist, APAC at DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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