Dollar Gains Ahead Of Retail Sales Report and Next Week's Fed Policy

The US dollar was strong ahead of the retail sales report expected later today and ahead of next week’s Federal Reserve meeting.

The dollar was especially strong against the Japanese yen, hitting a 6-year high as Bank of Japan Governor Haruhiko Kuroda said to the Prime Minister that the bank was ready to take action in order to hit its 2% inflation target. The dollar traded north of 107 at 107.22, after breaking to a new 6-year high of 107.39. The dollar’s gains have come with impressive speed after the BoJ Governor suggested the previous week that the yen could fall further against the US dollar without causing disruptions to the Japanese economy.

The euroon the other hand was relatively more resilient against the dollar, as it traded at 1.2930. The pound rebounded above 1.62 to trade as high as 1.6266 the previous session after a YouGov poll showed a 4-point lead to the ‘No’ campaign in Scotland’s referendum. The pound was trading at 1.6231 at the close of the Asian session.

The currencies of New Zealand and Australia were under significant pressure as well. The aussie made a 6-month low below 91 cents at 0.9060 against the US dollar, while the Kiwi traded at a 7-month low of 0.8157. So overall another day of broad dollar strength – with the exception of the European currencies – which also shows how dangerous it is to try to call a top in this dollar rally.

Pound rallies on Scottish poll - GBP/USD bounces off 10-month lows

GBP/USD bounced off 10-month lows and is testing the 38.2% Fibonacci retracement level of the 1.4811-1.7190 upleg, at 1.6285.

The overall trend is bearish as the market is below the 200-day moving average and the daily tenkan-sen and kijun-sen are negatively aligned. Trend oscillators like RSI and the stochastic which were recently showing an oversold bias have now moved away from extremes, warning of more downside.

There is scope to target the 50% Fibonacci at 1.5998, which is close to the key psychological level at 1.6000. So this is an important support level.

To the upside, resistance has formed at the 38.2% Fibonacci at 1.6285.