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Daily Report
By Jameel Ahmad, Chief Market Analyst at FXTM
It looks like those who joined the Greenback profit-taking train on Monday afternoon were validated by Wednesday evening’s FOMC Minutes release. The USD softened against its main counterparts following indications that the Fed are weary regarding raising rates too soon and leaving the “considerable time” phase in the minutes release.
If I am honest, I do not perceive the FOMC Minutes release as completely dovish and a reason to back away from the Greenback quite yet. We are just yet to receive that unexpected hawkish comment regarding a potential timeframe for a rate hike that investors are eagerly anticipating. The drop of a hint that the stronger USD could hurt exports and dampen inflation (the latter of course can later be used as a reason to delay a rate increase) came a month or two earlier than I expected though.
As a consequence of the USD weakness, the Eurodollar cleared the 1.27 hurdle after finding resistance between 1.2673 and 1.2697 for the previous five successive days. Due to the EU economic sentiment being so bleak at present, I am unsure whether the pair can stay at 1.27 for long. In the early hours of Thursday morning, we have already received further worrying data from Germany. Imports and Exports both contracted on a monthly basis in August, which will only add further fuel to the fire that Europe’s largest economy could contract again in Q3. Later this afternoon, ECB President Mario Draghi is set to speak in Washington. Draghi may have been alerted by the Eurodollar appreciation over the last week, with any dovish comments having the potential to send the Eurodollar back to the downside.
The Greenback softness also encouraged Cable appreciation on Wednesday evening. The GBPUSD concluded trading at 1.6167, after it previously looked like the pair was struggling to find the legs to consolidate at 1.61. In the early hours of Thursday morning, the pair has already traded as high as 1.6197 and whether the pair can continue its move to the upside will be largely dependent on the reaction to the Bank of England (BoE) rate decision. No change in monetary policy is expected from the BoE today, but any suspicions that a third member of the monetary policy committee (MPC) voted for a rate increase has heightened potential to reignite the GBP bulls.
The USDJPY is continuing to feel the effects of failing to reach resistance at 110.270, with its pullback continuing overnight and I don’t necessarily think the correction is over yet. In line with expectations, the USDJPY found support at 107.730 and seems to be consolidating around this area in the early hours of Thursday morning.
A great deal of attention was cast upon this pair reaching 110 twice within the past week, but what many are not realizing is that resistance for the pair is located at 110.270. Until the pair reaches this level, any moves to 110 will be short visitations. Both times the USDJPY reached 110, it pulled back heavily. For the USDJPY pullback to continue, we need a downside break below the 107.730 support level. The Bank of Japan (BoJ) left stimulus unchanged last month, while the Federal Reserve might have slowed down the USD rally last night. If the pair can extend below the 107.730 support, further moves to the downside could be sudden.
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