Dukascopy Bank Team
Dukascopy Bank SA
Technical Analysis
EUR/USD drops before FOMC; uncertainty remains
“There’s so much now up in the air that I don’t think people want to take big positions.”
- Charles Schwab & Co. (based on Bloomberg)
Pair’s Outlook
The US currency skyrocketed versus the Euro on Tuesday, by rallying circa 150 points to 1.0930. This level is placed under both 55-day SMA and weekly PP. On Wednesday morning we are observing a light trading, in anticipation of the most important Fed decision in recent years. Markets remain very cautious, as they suggest a hike is already priced into the Dollar. In case the FOMC disappoints from the side of future hike expectations, the EUR/USD may quickly bounce back towards yesterday highs at 1.1058 (100-day SMA). A hawkish surprise should give USD a boost up to 1.08 (Dec 7 low).
Traders’ Sentiment
SWFX traders are preserving the status-quo for the moment, being that distribution between the bulls and bears is flat for a fourth day in a row at 45% versus 55%.
GBP/USD: all eyes on the Fed
“It all depends on how the U.S. stocks and bond yields will perform after the event. But I have an image that profit-taking will kick in because there would be no more of the material that was moving the market.”
- Yuzo Sakai, Tokyo Forex & Ueda Harlow (based on Market Watch)
Pair’s Outlook
On Tuesday the Sterling suffered another gradual decline against the US Dollar, with trade closing only at the second support, namely the weekly S1. With the US rate hike looming closer the Cable is poised for a third consecutive day of weakness, which could lead the pair under 1.49 and, thus, pierce the support trend-line. Even though the trend-line is also bolstered by the monthly S1 and weekly S2, losses might exceed this area if the Fed delivers an interest rate hike. On the other hand, a much more dovish statement today is likely to cause a rally that would touch the resistance line around 1.5260.
Traders’ Sentiment
Traders still expect a bullish reaction from the GBP/USD, as 59% of all positions are long. The share of buy orders slid from 51 to 43%.
USD/JPY rises in anticipation of the rate hike decision
“With USD positioning now substantially reduced and the USD trading at more attractive levels versus key G10 currencies, we think the USD is more likely to gain immediately in the aftermath of Fed tightening.”
- BNP Paribas (based on Reuters)
Pair’s Outlook
The USD/JPY rebounded from its intraday low yesterday, after the inflation data sparked more hope of the Fed raising interest rates today. The immediate resistance cluster, however, managed to stop the rally at 121.65 and is now providing rather strong support. In case the Fed does not disappoint, the resistance around 122.40 is likely to give in and trigger a USD buying spree, which, in turn, could lead the Buck even towards the Nov high at 123.75. An unexpected delay of the rate hike is to cause a sharp sell-off, but without the violation of the three-year up-trend around the 119.00 major level.
Traders’ Sentiment
Bears are outnumbering the bulls by only 2% points, whereas the portion of orders to buy the US currency dropped from 56 to 44%.
Gold appreciates before the FOMC verdict
“Gold may drop in an initial reaction to a hike. But as the hike is generally expected, any selloff may be relatively short-lived.”
- HSBC (based on CNBC)
Pair’s Outlook
The bullion traded with no daily change on Tuesday, even though attempts were made to surge in the direction of 1,070. Wednesday morning, however, we are seeing a more pronounced bullish action. Market volatility is expected to be uplifted in the next 24 hours, also because traders are curious about the Fed decision and, most importantly, the future pace of hikes. Even a slightly dovish outcome for the second point could result in positive trading for gold, possibly up to the 1,086 mark (monthly PP). A hawkish result should prepare the metal for a sell-off down to the 1,044 target (2010 low).
Traders’ Sentiment
Yesterday we saw the total number of bullish open positions remaining flat at 59%, putting the bears into minority of 41%. Any shift in sentiments among SWFX market participants is likely to occur after the FOMC interest rate decision is made this evening.
This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.
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