Asian Session – US dollar trading cautiously ahead of Fed statement
US dollar traders were cautious about pushing the currency higher ahead of the Federal Reserve announcement later today. The dollar was hurt yesterday by weaker-than-expected durable goods orders data for September, which cast a shadow on just how strong the US economy was and whether business investment would increase thereby creating the conditions for more sustainable economic growth. Consumer confidence on the other hand rose to a 7-year high, showing that consumers are benefitting from a strong labor market and lower gasoline prices.
The euro traded as high as 1.2764 the previous day before receding to around 1.2740 today, taking advantage of the dollar’s weakness to rise to a 1-week high. The dollar was a little more resilient against the Japanese yen, trading above 108 as risk sentiment was very positive following the previous day’s trading on Wall Street. The S&P 500 rose within 1.5% of its all-time high registered in September on the back of strong earnings. The yen was however supported by a higher-than-expected industrial production number out of Japan for September.
The Swedish Crown stabilized during Asian trading, after sliding to a 4-year low against the dollar after the Riksbank reduced the country’s key rate to zero and said it would keep the rate low until 2016 in order to fight deflation.
In an otherwise slow day for economic releases, traders will be expecting the verdict out of the Federal Reserve later today. The Fed is widely expected to announce the end of its Quantitative Easing program, but it will probably balance this with a reference that it will keep interest rates low for a “considerable period”. Overall the market seems to have been positioned for a Fed that will not be in a hurry to raise interest rates and will sound a note of cautious optimism about the US economy. Tomorrow’s third quarter growth rate out of the United States should help to clarify the picture of how strong the economy actually is.
Technical Analysis – GBP/USD in neutral
GBP/USD has paused its downtrend and has a neutral bias since trading within a range between 1.5873 and 1.6225 during the last 3 weeks. Prices are capped by the 50% Fibonacci retracement level of the 1.6523 – 1.5873 downleg (September 19 high – October 15 low). This resistance level stands at 1.6197. The 23.6% Fibonacci level at 1.6024 acts as immediate support while stronger support lies at 1.5873. A break below this would strengthen the bearish bias for another leg lower to target the key psychological level of 1.5600.
The overall market structure is bearish as confirmed by the falling Ichimoku cloud and prices being below the 200-day moving average. The near-term neutral bias is confirmed by the flat tenkan-sen and kijun-sen lines and the RSI being on the 50 point line.