Matt Simpson, CFTe, MSTA
CityIndex
There has been much anticipation on tonight’s FOMC staff projections and FED speech, with many analysts and participants expecting the FED to drop ‘considerable time’ in a speech, to suggest the initial interest rate rise will indeed “rise sooner than later”.
Expectations require fulfilling...
Of course with so much anticipation and expectations of these key words being dropped it does leave the market up for a huge disappointment if the FED fails to deliver, causing the Greenback to fall from current highs as a consequence. With the Greenback amid its best bull-run since May ’11 lows it wouldn’t hurt too much to see a USD pullback. This would help support the A$ above 90c which was successfully defended by bears booking profits, following the 6th consecutive session of declines. OECD cut growth forecasts for the US, so if FOMC Staff projections back up a further growth cut forecast tonight and the FED also fails to deliver a Hawkish tone then expect some rapid USD selling. AUDUSD could retest the 92c level, a key level for the bears to defend. However if this level holds as resistance then we can expect fresh short positions to be initiated as bearish traders seek to drive the Aussie below 90c. Like the RBA many traders believe the Aussie to be overvalued and it could be time for the A$ to catch up Iron Ore prices which sits at 5-year lows. Even of the FED do fail to deliver tonight I only see this as a temporary blip, so A$ gains should be short lived.
Alternatively - what of they deliver?
That said, the FED many finally deliver what traders have been asking for. A refined and more clear message of forward guidance. This should further fuel the bullish Greenback fire, putting extra pressure on the A$.
Technically:
The H&S shoulders confirmed below 92c targets 89c. Any rallies towards 92 are likely to attract bearish interest for the larger move down. This may provide bullish opportunities on intraday timeframes until a clear level of resistance has been respected.
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