Summary:
- The dollar rebounded sharply, trading in a more than 100 pips range on the day, as FOMC made some significant changes in its forward guidance for the short to medium-term prospects despite the Federal Reserve decided to keep policy on hold to avoid to “rock the boat”.
- Non-US currencies saw broad-based losses while the gold fell further to above 1295 against the aforementioned backdrop. It will be interesting to watch whether or not the yellow metal could hold above its daily EMA60 acting as supports.
On the previous trading session (20 September, Wednesday), the dollar index posted significant gains as the Fed announced start of balance sheet reduction from October despite the central bank decided to keep policy on hold at the early hours Thursday BJT. The interest rate outlook for next year remained largely unchanged in the Fed’s latest projections, with three rises envisioned in 2018. It forecasted two increases in 2019 and one in 2020. The new economic projections showed 11 of 16 FOMC members see the appropriate level for the federal funds rate to be in a range between 1.25 percent and 1.50 percent by the end of 2017. The projections also showed gross domestic product was expected to grow at a rate of 2.4 percent this year, 2.1 percent next year and 2.0 percent in 2019 and inflation was expected to remain under the Fed’s 2 percent target through 2018 before hitting it in 2019. According to the CME Group’s FedWatch tool, investors now see a 70.5 percent chance of a rate-hike of 25 basis points by the end of December, up from 50.9 percent. With “the most important FED meeting for 2017” out of the way, we will get policy decision from BOJ and a speech by the President of ECB Mario Draghi on financial stability at 2130 BJT.
Technical
The dollar index (DXY) staged a recovery on the hawkish forward guidance and tested its daily trend resistances again. Its short term moving averages went higher sharply, very likely to cross above its long term moving averages directly on the day. Upside resistance levels to watch reside at a range between H4-period EMA169 and H4-period EMA200.
As to non-US currencies, the euro formed a head-shoulders pattern, meanwhile the price showed bearish divergence with MACD indicator on its daily chart. The shared currency’s sell-off is testing its daily trend support with potential extension of its decline. The British pound retreated after hitting a fresh yearly high at 1.3655 and could fall towards H4-period trend supports going forward, with downside supports at H4-period EMA30 follow by H4-period EMA60. The Aussie dollar reversed losses and moved back to the opening price of Wednesday. Whether or not the commodity currency could fall further to test a support at daily EMA30 will be important to observe.
Switching gears over to the precious metals now, the gold resumed down move after a corrective rebound. The price was capped by its long term moving averages which could diverge further with bearish bias while its short term moving averages turned lower again after convergence on the 4 hour chart. The yellow metal reached its daily EMA60 supports at this stage. It will be interesting to see how the price will react to the support at circa 1295.
Disclaimer: The views and opinions expressed in this article are those of the authors and for the purpose of reference only, and shall not be relied upon by investors in making any trading decisions.