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Talking Points:
- The next few trading days bring a series of Central Bank announcements that can keep FX markets volatile in the near-term. In this webinar, we used price action to look at setups for various scenarios over the next few days’ worth of drivers.
- We started off by looking at the U.S. Dollar ahead of the Fed’s widely-expected interest rate hike tomorrow. As we shared, a rate hike doesn’t necessarily mean a stronger Dollar. The bigger question will be what the Fed might be planning around the balance sheet. If the Fed is looking to tighten the money supply by reducing the balance sheet, this would be de facto tightening without higher rates. The higher rates are what generally attract capital flows, so if the Fed is looking to tighten through balance sheet operations as opposed to higher rates, there could be a very valid reason to look at USD weakness continuation.
- On the side of USD weakness we looked at EUR/USD. Last week saw a very dovish ECB talk-down the prospect of QE exit and this brought a brief iteration of weakness to the Euro. But buyers showed-up shortly thereafter and since, we’ve seen EUR/USD retain its longer-term bullish posture. If USD-weakness shows after tomorrow’s FOMC announcement, long EUR/USD could be an attractive venue for such a theme.
- We then moved over to USD/JPY, which appears to be trying to put in a bullish formation with the recent series of higher-lows. With price action finding support around 110.00, with 109.90 being the 50% retracement of the ‘post-Election’ move in the pair and a Bank of Japan meeting on the calendar for later in the week, and a topside setup could be attractive, particularly in the case of USD-strength post-FOMC.
- We then moved over to GBP/USD, which is catching a bid after this morning’s U.K. inflation numbers; and this is on the heels of last week’s drive-lower after U.K. elections. Thursday morning brings another Bank of England meeting, and the big question is just how dovish the bank might be after this higher-than-expected inflation print and with the backdrop of even more uncertainty around Brexit after last week’s election. We looked at this as a pair to watch for USD-weakness tomorrow around FOMC in order to find a more advantageous point with which to sell. We looked at the area around 1.2843 for such a purpose.
- We then looked at USD/CAD testing support in a bullish trend channel.
- We then looked at AUD/USD, which has the makings of a bullish formation on the 4-hour chart.
- We then looked at the robust bullish move in NZD/USD, and while attractive, the trend feels overbought as we encounter longer-term resistance levels.
- We then looked at GBP/JPY, which is currently in a bearish channel.
--- Written by James Stanley, Strategist for DailyFX.com
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