Wednesday June 18th FOMC statement and the press conference did not muddy the water much but it also did not allay all fears and concerns. The Fed has stuck to its plan tapering to wind down its bond-buying program by the year-end and then start raising interest rates some times early next year. That was good enough for the equity markets as the major indices rose after the mid-afternoon press conference. The Forex markets have shown some movements but not by much.
Dollar Index Falls Back
Before the FOMC statement, the dollar index was trying to overcome a resistance level near April 4th high of 80.60. It jumped above it when the statement came out at 2:00 PM but after that it started to drift downwards and closed down convincingly by the day’s end. Thursday price action does not indicate that it will try to get over the resistance soon. Today it is falling below the 200-D moving average. It is still above 100-D and 50-D moving averages. Index move back into the horizontal channel has nullified any bullish case for short-term trading to the long side
EUR/USD was pushed down after the ECB rate decision early in the month. Bears were hoping to get some support from FOMC to keep it moving down. However, the FOMC was not hawkish enough (or less dovish) for them to maintain the upper-hand. Euro bulls are asserting themselves and the pair has halted its journey to the measured target of the double-top pattern. It tested the lows reached on June 5th, after ECB announcement, but did not fall below. Thursday has seen it move up to test the highs made on June 5th (and June 6th). The bearish case is not that strong, however, there are some strong resistance levels hovering above – April 4th low of 1.3673 between two tops and 200-D, 100-D, and 50-D moving averages.
USD/JPY Is Confused or Is It Paused
Two (or three) strong currents are affecting Yen. BoJ is continuing with Abenomics, which calls for a weakened currency. This bullish for the pair.
The pair also reacts better – than other currency pairs – to the economic conditions of the US and Fed’s decisions. US economic conditions are making a case for stronger dollar but the Fed’s decisions are bearish for dollar. As of now, Fed’s action have a stronger influence and the impact is bearish for USD/JPY.
The third current is the risk-off or safe haven nature of yen. When the market fear increases, the money flows to yen. At the moment the fear or uncertainty is low so the effect of ‘being a safe-haven currency’ is minimal for the pair.
No wonder, the net result is a confused state for USD/JPY. After making a five-year high of 105.41 on Dec 30th, 2013, USD/JPY has been gradually drifting down. In the process it is making a nice descending triangle. We are getting closer to the apex and to the next move, which could be either way. The descending triangles are usually bearish but when the fail then the moves are generally very strong.
Cable Is Breaking Out
Fed Chair Yellen stayed on course with weaker rates for long time. BoE Governor Carney said that the rate increase may be sooner than market expectation. And, June is seasonally a bullish time for GBP. After Governor Carney’s speech, GBP/USD jumped up but could not clear a long term-resistance near 5-year high. Before FOMC Statement it was just staying below the recent high of 1.6996 made on May 6th. Post FOMC, it jumped above the high of 1.7043 made in August 2009. So definitely, the posture of Cable is bullish. The measured target of the horizontal channel break is near 1.7300.
Aussie is trying to break above the upper limit of a horizontal channel. A break above the channel and the high of 0.9460 will clear the path for the measured target near 0.9620 and the resistance high of 0.9757 made on October 23rd, 2013.
Kiwi is also similarly placed, though it had a shallower retracement in early June before it found the support at the highs of Jan ’14 and Sep ’13. A break above current resistance will open the path for the next resistance at the high of 0.8842 made in August 2011. The measured target of the channel-pattern is between 0.8950 and 0.9100.
The Loonie is making a descending triangle after making a fiver-year high of 1.1278 in Mar ’14. A break below the lower limit of the triangle, 1.0800, will bring in picture the support of 1.0560 between the 38.2% and 50% Fibonacci retracement levels of the retracement of the rally from Sep ’12 low of 0.9633 to the Mar ’14 high.
Swiss franc was flying high – relatively – trying to overcome a resistance for six straight days before yesterday. The FOMC statement took the wind out of its sail. Now it is back at the previous resistance turned support. The bullish case has weakened though a bearish case has not asserted itself, mostly because of SNB cap on EUR/CHF exchange rate.
The biggest underlying theme of the our ‘Forex Watch’ is the dollar index. The recent chart patterns and price-actions of all major currencies are greatly affected by the outlook for dollar and Federal Reserve’s actions and intentions. True, the policies of central banks and the state of economy of respective countries are in play but the Forex market action of yesterday was primarily driven by the Fed. Once the Fed’s intentions were clearer – at least for the time being – other factors re-asserted themselves in shaping up the evolving pattern or move. This analysis is only for the short-term and any significant catalyst can change the anticipated move of forex pairs.