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Dollar Ready for Rebound, Pound Rises as Brexit Fears Ease at BoE

Dollar Ready for Rebound, Pound Rises as Brexit Fears Ease at BoE

2016-09-23 00:45:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The Dollar's post-FOMC drop has cooled with most pairs in the middle of ranges and a round of Fed speeches on tap
  • US equities and risk-guided assets extended their climb, but the tepid fundamental drive is running thin
  • BoE Member Forbes eased Brexit fears and lifted the Fed, Gold and Oil are working building to a commodity break

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

In the wake of the BoJ stimulus twist and Fed rate hold, two prominent market moves arose: a bid for risk and a dive from the Dollar. Both trends continued into Thursday's session, yet both also slowed their tempo. With technical boundaries coming into view, the now familiar sense of skepticism is rising quickly to offset the shallow fundamental backdrop to the speculative moves. Heading the risk move, the S&P 500 is less than 1 percent off its record high; but the blackhole of volatility through July and August offers ready comparison. Shares, risk favorite ETFs (Emerging Market, High Yield Fixed Income) and Yen crosses are closing in on zones of resistance. Event risk to hurdle the chart boundaries is lacking even if it could supply traction for specific currencies.

One currency to keep close tabs on through the end of the week is the Dollar. Post Fed decision, the Greenback is down against all the majors with the exception of the Kiwi. Many of the USD pairs are in middle of moderate ranges (EUR/USD, USD/CAD, NZD/USD); but others are offering a little more cannon fodder for those looking for a fundamental bounce - or break. AUD/USD is quickly reaching a trendline resistance that is 21-months old and forms the cap on a large wedge. Next step is round of four Fed speakers (three speaking on a panel) that will give context to the rate decision Wednesday that maintained forecasts for a hike in 2016. All four are perceived to be hawkish. Rate speculation and risk trends should ratchet up the tension on USD/JPY, but doesn't help resolve direction preemptively.

Outside the dominant FX and capital market themes, we have seen further withdrawal of the Sterling's Brexit discount. Three BoE members spoke this past session, but it was Kristin Forbes's suggestion that the initial Brexit impact may be less than expected and that economic forecasts may be revised up that gave weight to recent data. Pairs like GBP/USD, EUR/GBP and GBP/NZD are early and reticent in their turns. Meanwhile, commodities rose alongside risk trends Thursday, but they are drawing fundamental strength from more prosaic sources. Oil has charged an impressive four-day rally on the drop in inventories and talk of OPEC supply caps that have crowded the tape. Gold has pushed higher as the collective easing mentality of the week (hold for Fed, stimulus for BoJ) bolstered the anti-currency asset. We look at the markets and currencies attempting trends and those at technical boundaries in today's Trading Video.

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