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Fed Taper/Forward-Guidance to Put Bullish USD Trade in Motion

Fed Taper/Forward-Guidance to Put Bullish USD Trade in Motion

David Song, Strategist

- USDOLLAR Maintains Weekly Range Ahead of FOMC Announcement

- British Pound Climbs to Fresh Month High (1.5978) on BoE Policy

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10603.64

10627.72

10599.11

-0.12

60.95%

USDOLLAR Daily

Forex_Fed_TaperForward-Guidance_to_Put_Bullish_USD_Trade_in_Motion_body_Picture_3.png, Fed Taper/Forward-Guidance to Put Bullish USD Trade in Motion

Chart - Created Using FXCM Marketscope 2.0

  • USDOLLAR Continues to Carve Higher Low; RSI Coming Up Against Oversold
  • Key Resistance: 10,803 (38.2 retracement) to 10,806 (78.6 expansion)
  • Major Support Still in Play at 10,582 (23.6 expansion) to 10,589 (50.0 retracement)

Release

GMT

Expected

Actual

Housing Starts (AUG)

12:30

917K

891K

Housing Starts (MoM) (AUG)

12:30

2.3%

0.9%

Building Permits (AUG)

12:30

950K

918K

Building Permits (MoM) (AUG)

12:30

-0.4%

-3.8%

Federal Open Market Committee Interest Rate Decision

18:00

0.25%

?

Fed Releases Summary of Economic Projections

18:00

FOMC Mortgage-Backed Securities Purchases

18:00

$40B

?

FOMC Treasury Purchases

18:00

$35B

?

Fed Chairman Ben Bernanke Holds Press Conference

18:30

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is struggling to hold its ground ahead of the Federal Open Market Committee (FOMC) interest rate decision as market participants mull the outlook for monetary policy, but the fresh developments coming out of the central bank may encourage a more meaningful recovery in the reserve currency should the Fed move away from its highly accommodative policy stance.

Despite forecasts for a $5B cut in the Fed’s bond-buying program, we may see a more material shift in the policy outlook as the central bank anticipates a stronger recovery for the U.S. economy, and the central bank’s forward-guidance may highlight a greater willingness to implement the exit strategy ahead of schedule as the

Should the Fed taper the asset-purchase program and/or lay out a more detailed exit strategy, the two scenarios could foster a near-term rally in the USDOLLAR, but the greenback may face a sharp selloff should the FOMC show further support for its highly accommodative policy stance.

Forex_Fed_TaperForward-Guidance_to_Put_Bullish_USD_Trade_in_Motion_body_ScreenShot119.png, Fed Taper/Forward-Guidance to Put Bullish USD Trade in Motion

GBPUSD Daily

Forex_Fed_TaperForward-Guidance_to_Put_Bullish_USD_Trade_in_Motion_body_Picture_1.png, Fed Taper/Forward-Guidance to Put Bullish USD Trade in Motion
  • Upward Trending Channel Remains Intact; 1.6000 Handle in View
  • RSI Maintains Bullish Trend; Need a Close Below 70 to See Correction
  • Key Resistance: 1.6040 (100.0 expansion) to 1.6050 (78.6 retracement)
  • Former Resistance to Offer Support: 1.5680-90 (38.2 retracement)

Two of the four components advanced against the greenback, led by a 0.42 percent rise in the British Pound, and despite the overbought signal, the GBPUSD may continue to march towards the 1.6000 handle as the Bank of England (BoE) appears to be slowly moving away from its easing cycle.

Indeed, the BoE Minutes suggests that the Monetary Policy Committee will implement its exit strategy ahead of schedule as the central bank scales back its willingness to expand the balance sheet further, and the shift in the policy outlook should prop up the sterling over the near to medium-term as the economic recovery in the U.K. gathers pace.

In turn. the the GBPUSD continue to mark fresh months highs amid the positive developments coming out of Britain, and we will wait for the RSI structure to close below 70 to see a more meaningful correction take shape.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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