Dollar tumbled broadly after FOMC kept interest rate unchanged last week and sent a more dovish than expected message. However, the weakness in the greenback was relatively limited and short lived. Dollar staged a strong recovery towards the weekly close. Dollar still closed the week as the second weakest major currency, after Euro. But the near term outlook in dollar is not overwhelmingly bearish in spite of the FOMC disappointments. Indeed, it's possibly the time to re-considering buying dollar again after this key event risk is past. Based on Friday's CME group FedWatch data, markets are only pricing in 11% change of rate hike in October and 39% in December. Such non-expectation of a hike could turn out to be supportive to the greenback.
To recap, Fed left unchanged the policy rate at 0-0.25%. Yet, the accompanying statement and the economic projections came in more dovish than expected. The Fed showed concerns over the negative impacts of the recent global financial market volatility, as well as rapid slowdown in China and other emerging markets, on growth and inflation outlook. In the latest Summary of Economic Projections, the Fed staff revised lower the growth and inflation outlook. In the new dot plot, there were fewer members expecting rate hike this year and there was one member favoring a cut to negative rate. More in Fed On Hold, Outlook More Dovish.
The dollar index dipped to as low as 94.06 last week but recovered to close at 94.86. The lack of downside momentum and the structure suggests that fall from 96.61 was merely a corrective move. And that could indeed be finished on a climax selling last week. Near term focus is back to 95.84 and break will argue that rebound from 92.62 is resuming for 98.33/100.39 resistance zone. In case of deeper fall, we'd continue to expect strong support from 92.62 low to contain downside and bring rebound.
Let's take a look at some dollar pairs. EUR/USD's rebound was rather disappointing as it reversed sharply after hitting 1.1459. Further rise is still mildly in favor as long as 1.1231 minor support holds. But the corrective structure makes the bullish case rather vulnerable. On the other hand, break of 1.1213 should send the greenback through 1.1086 support to resume the fall from 1.1713.
GBP/USD's bullish case was relatively stronger due to the strength of the rise from 1.5164. And further rise is still mildly in favor as long as 1.5476 support holds. But a break of this support level will turn focus back to 1.5164 support even though decline attempt might be contained above there initially.
USD/CHF's strong rebound suggests that the corrective pull back from 0.9823 could have completed at 0.9527 already. And the focus is back to upper trend line of recent triangle consolidation pattern, which is close to 0.9823 resistance.
USD/JPY was bounded in range of 118.58/121.62 and there was no bearishness at all. A break of 121.62 resistance will pave the way to 125.27/85 resistance zone.
AUD/USD's breach of 0.7233 support turned resistance makes its near term bullish outlook mildly stronger. As long as 0.7136 support holds, further rise will be seen to 38.2% retracement of 0.8161 to 0.6905 at 0.7385.
USD/CAD's dip was contained above 1.2951 support and price actions from 1.3353 are still being viewed as a consolidation pattern. The larger up trend is still expected to resume through 1.3353 sooner or later.
Hence, overall, the outlook of dollar isn't too bearish and we're probably presented an opportunity to long it with cautious strategy for a near term trade. Among European majors, Sterling performed relatively well last week and we'd tend to avoid. Comparing Euro and Swiss Franc, while EUR/CHF was in consolidation, the cross maintain a bullish outlook. And from the price actions in USD/CHF, the Swiss Franc seems to the weakest one. Meanwhile, as noted above, AUD/USD bullish case is relatively more solid than others while USD/CAD is staying bullish as being support above 1.2951 support.
So, regarding trading strategies, we'll buy USD/CHF on break of 0.9823 resistance this week for rally towards 1.0127 resistance. Meanwhile, we'll also buy USD/CAD on break of 1.3353 for next fibonacci level at 1.3469.
USD/CHF Weekly Outlook
USD/CHF dipped sharply to as low as 0.9527 but recovered strongly since then. Initial bias is neutral this week first. Overall outlook is unchanged as recent sideway pattern is viewed as a triangle consolidation pattern. Below 0.9527 will bring another fall but we'd expect strong support above 0.9256 to bring rebound. Above 0.9823 will turn focus to 0.9902 resistance. Decisive break there will be an early sign of range breakout and larger rise resumption.
In the bigger picture, USD/CHF is staying in a medium to long term sideway pattern from 1.0239. There are various interpretation on the starting point of the triangle pattern. The preferred view is that the triangle started at 1.0127, which has bullish implication. Break of 0.9902 will target 1.0239 and above. Meanwhile, break of 0.9256 will turn outlook bearish for a medium term fall. In either case, the breakout move would be powerful.
