The market started the week softening the USD across the board. We saw rallies in EUR/USD, GBP/USD, AUD/USD, and declines in USD/JPY, USD/CHF, and USD/CAD just to name a few USD-crosses. Traders were walking back recent USD-strength, one that was partially based on expectations that the Fed is considering hiking rates in 2015.
The FOMC minutes had 3 main points:
1) Economy is still slow in recovering, and China’s downturn won’t help.
2) Members walking back some optimism shown at the turn of the the year – recent soft data is not just due to the cold. Thus low interest rate might be longer than expected, maybe through 2015.
3) Inflation is low and is a concern that can hold back any interest rate hike.
This provides some basis for the USD-weakness already put in earlier this week. The minutes revealed a committee that wanted to stay grounded and was concerned it was getting ahead of itself in projecting rate hikes in 2015 and 2016. Thus the minutes were relatively dovish compared to recent hawkish developments. The greenback was already sliding – the question is whether it will extend.
Let’s take a look at the USD/JPY, EUR/USD and GBP/USD.
USD/JPY vs. EUR/USD and GBP/USD developments:
USD-weakness looks best for EUR/USD and GBP/USD. However, the JPY is also weak, and USD/JPY has been bullish. Thus, it will take more to continue the uptrends in EUR/USD and GBP/USD than to reverse the prevailing uptrend in USD.
USD/JPY:
(usdjpy 4h chart 4/9)
The USD/JPY has been very bearish this week, and today’s minutes confirm that the market’s concern was being priced in.
If USD/JPY can’t push below 101.50, it will maintain a slightly bullish bias within the consolidation mode. A break below that extends the bearish outlook first to challenge the 2014 low at 100.75, towards the 100 psychological handle.
It will be tough to keep a bullish outlook for USD/JPY after the dovish minutes, UNLESS the pair rallies back above some common resistance in the 102.80-85 area.
The EUR/USD and GBP/USD are both being boosted because of the weak USD.
EUR/USD
(eurusd 4h chart, 4/9)
EUR/USD broke above the 1.38 resistance where it stalled earlier this session. The USD-negative reaction also pushed it above a falling channel resistance, thus reflecting bullish continuation. It’s next challenge will be to clear the 2014-high near 1.3966.
GBP/USD
(gbpusd 4h chart, 4/9)
GBP/USD is now about to test the 2014 high at 1.6822. Above that, cable’s next challenge will be the 2009 highs, situated in the 1.69-1.7050 area. If we get a throwback, look for support in the 1.6650-1.67 area. At this point, a break below 1.6550 will be needed to take away the strong bullish continuation outlook.
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