US Dollar Price Analysis and Talking Points:
Option markets point to muted session
Today’s session is likely to see major FX pairs trading in relatively narrow ranges with option implied volatility suggesting tame price action. Alongside this, sizeable vanilla option expiries may also curb volatility given that they can act of a draw in times subdued price action. These expiries over the next two days are particularly evident in EUR/USD, GBP/USD and USD/JPY.
Thursday’s expiries
EUR/USD 1.1145-50 ($700mln), 1.1200 ($1bln)
EUR/GBP 0.8600 ($1bln), 0.8650 ($1.1bln), 0.8700 ($2.8bln)
USD/JPY 108.00-10 ($2.5bln), 108.35-45 ($900mln), 108.50-70 ($1bln), 109.00 ($1.6bln)
Friday’s expiries
EUR/USD 1.1100-10 ($1bln), 1.1150 ($2.6bln), 1.1200 ($5.2bln)
GBP/USD 1.2900 ($2.4bln), 1.2950 ($1.1bln)
EUR/USD Edges Towards Key Resistance
The Euro has made a notable turnaround following the Federal Reserves rate decision. Initially, the market had interpreted the decision as a hawkish cut, resulting in USD upside, however, this had quickly reversed after Chair Powell stated that a rate hike would only take place if inflation rose significantly, thus setting a high bar for future rate hikes. That said, EUR/USD is testing the 200DMA at 1.1171 and is trading at last weeks highs. Although, with risks still tilting to the downside in the Eurozone and with trade war headlines dampening market sentiment, gains in the pair are somewhat limited above 1.1200.
| Support | Resistance | ||
|---|---|---|---|
| 1.1143 | 38.2% Fib | 1.1171 | 200DMA |
| 1.1110 | February 13th High | 1.1200 | - |
| 1.1070 | Weekly Low | 1.1224 | 50% Fib/trendline |
EUR/USD Price Chart: Daily Time Frame (Oct 18 – Oct 19)
USD/CAD Makes a Key Reversal
The Canadian Dollar saw a notable drop following the dovish Bank of Canada rate decision, in which the central bank removed its rhetoric that current rates remain appropriate, while also highlighting that Canada’s resilience is likely to be increasingly tested amid the global uncertainty. Consequently, money markets made a sharp repricing of future easing from the BoC in 2020, prompting a key reversal in USD/CAD. As the pair made a close above 1.3145, risks are tilted towards further gains with the 1.32 handle in focus, particularly if risk sentiment deteriorates.
| Support | Resistance | ||
|---|---|---|---|
| 1.3145 | 23.6% Fib | 1.3208 | October 30th High |
| 1.3100 | - | 1.3225 | 38.2% Fib |
| 1.3050 | - | 1.3240 | October 14/15th Double Top |
USD/CAD Price Chart: Daily Time Frame (Apr 19 – Oct 19)
USD/JPY Fails at 200DMA
Post the FOMC decision, USD/JPY traded above its 200DMA for the first time since the beginning of May. However, the pair had failed to make a close above this and subsequently proceeded to trend lower. Reports this morning that China do not see a long-term trade deal with President Trump has benefitted safe-havens with USD/JPY back towards the 108.20-30 support. Given the large option expiry at 108.00 further losses may be curbed in the near-term, unless there is a further deterioration in risk appetite. As a reminder, the next key event is tomorrow’s NFP and ISM releases with the Fed outlook now increasingly data dependent.
| Support | Resistance | ||
|---|---|---|---|
| 108.20 | October 23rd Low | 109.00 | - |
| 108.00 | - | 109.04 | 200DMA |
USD/JPY Price Chart: Daily Time Frame (Apr 19 – Oct 19)
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--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
