The Forex market seems to be waiting with a bated breath today’s FOMC Statement and Chairwoman Janet Yellen’s press conference. Already a press conference by ECB President Mario Draghi and a speech by BoE Governor Mark Carney have muddied the water by taking or hinting opposite policy actions. ECb instituted a negative rate policy to spur growth, increase inflation and counter the threats of deflation. The data from Euro Zone is still very soft on inflation. The Governor Carney said that the interest rate hikes might be sooner than market’s expectation. The data UK has painted a mixed picture. The CPI and PPI were below forecast and not showing rising inflation whereas the housing data was hot.
Yesterday’s US data was mixed too but showed the opposite of UK picture. The CPI data was hot but housing numbers were weak. So the market is wondering whether Chairwoman Yellen pull a ‘Carney’, stay-the-course or surprise differently.
The Dollar Index is showing an upward bias.
- It is bouncing off a less steep uptrend line from May 2011 lows.
- The bounce is also off a support zone – near 78.90 levels – formed by the Sep ’12 lows, Jan ’13 lows and Oct ’13 lows.
- It has also broken above a downtrend line from the highs of 2013.
- Presently it is approaching a cluttered area – near 81.25 levels – bounded by a resistance zone formed by the highs of Nov ’12, lows of Jun ’13, lows of Aug ’13, highs of Nov ’13 and highs of Jan ’14.
- The next resistance, if it breaks above the current resistance zone, is near 84.00
The daily chart gives more details. The current resistance is at 80.59. It has already broken above it once and then has fallen below. Next move above it will have target of 82.48, though it will have to clear a resistance at 81.50.
The USD/CHF pair is greatly affected by the EUR/CHF exchange rate cap set by the SNB. Ever since the SNB’s policy declaration in Sep ’11 to cap EUR/CHF at 1.2000, the USD/CHF is trading within a band bounded by 0.87 and 0.99. Presently it is at the lower limit and after peaking in May ’13 at 0.98, it is drifting downward along a long-term downtrend line formed by the joining the high of 1.8226 made in July 2001 and high of 1.17320 made in June 2010. A break above this line will open up path to the next resistance at 0.9800 levels.
The daily chart shows that the pair made a double bottom in May and has broken above the intermediate high of the tow lows. Now it is hovering over that resistance-turned-support. The measured target of the DB pattern is near 0.9200, but it will have to clear couple of resistance levels before that and not fall below the current support zone.
EUR/USD is undecided near the lower level of last few days trading. It made double top in May and the broke below the intermediate low. Since then it has been traveling toward the pattern target. Now near a support zone it is rethinking that direction. EUR forms bulk of dollar index and the pair moving down helps dollar index go up.
The USD/JPY is forming a symmetrical triangle after rising rapidly in Abenpmics era. From the beginning of 2014, the pair has been drifting downwards. Presently the USD/JPY is in the middle of the triangle, which is tapering fast, indicating indecision. JPY is the second biggest contributor to the dollar index. The immediate short term bias for the pair is downward, which is bearish for the dollar index and, thus, countering the impact of EUR/USD to some extent.
The Aussie has been rising since January 2014. It is a resource currency and is strongly influenced by China’s economy. This year, the Chinese economy has given mixed data signals but FXI, iShares China Large Cap ETF, is showing an upward bias. It is at the upper limit of an up-sloping channel.
The Aussie is also on the rise since January. Mid-week last week it made a double top and has retraced from that resistance level. It has not yet broken below the intermediate low so the pattern is still emerging. Unless AUD/USD breaks below the low of 0.9200, the upward bias exist. It is at the middle of the horizontal channel, showing an indecision.
The Kiwi is also making a pattern similar to Aussie but its upward bias is slightly more powerful.
The Cable jumped following Governor Carney’s speech but that was not sufficient for it to clear a resistance formed by a five-year high.
The are no clear reasons to initiate any trade at the moment, though, the biases of various pairs are visible. Perhaps, the FOMC Statement and press conference will provide more clarity.