VIX eases, US Dollar Index dips, FOMC up next – Taper timing eyed

Summary: The CBOE VIX (Fear) Index retreated after fears over the Evergrande situation abated. With China returning from its holidays today, all eyes will be on Beijing’s reaction to recent risk events. The Federal Reserve concludes its meeting early tomorrow morning Sydney time with traders eyeing the timing of its upcoming bond taper. Overnight, the Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, dipped 0.08% to 93.20 (93.24). The precarious Australian Dollar extended its slump to 0.7227 (0.7255) after the release of the RBA’s September board meeting minutes were seen as dovish. Officials acknowledged that Australia’s economic hit from Covid’s Delta spread was more severe than expected. Against the Swiss Franc, the US Dollar slid 0.51% to 0.9234 from 0.9276 yesterday. Switzerland’s Trade Surplus bettered forecasts, climbing to +CHF 5.06 billion (median f/c +CHF 4.5 billion). The Euro finished little-changed at 1.1725 (1.1727). Sterling closed flat at 1.3660. The USD/JPY pair eased to 109.23 from 109.36 yesterday. Asian and Emerging Market Currencies were mixed. The USD/CNH pair was last at 6.4825, unchanged from yesterday’s 6.4825. USD/SGD (US Dollar-Singapore Dollar) settled at 1.3522 (1.3525). Wall Street stocks erased gains to close modestly lower. The DOW was last at 33,907 (33,947). The S&P 500 closed 0.17% lower to 4,350 (4,355). Bond yields steadied. The US 10-year Treasury bond yield was last at 1.32%, from 1.31% yesterday.

Data released yesterday saw UK August Public Sector Net Borrowing slip to GBP 19.8 billion against median forecasts at 11.03 billion. UK August Conference Board Industrial Orders Expectations rose to 22 from a previous 18, beating estimates at 15. Canada’s Nationwide House Price Index in August dipped to 0.7% against expectations of 0.8%. US August Housing Starts climbed to 1.62 million, higher than estimates at 1.55 million. US August Building Permits rose to 1.73 million from July’s 1.63 million. US Q2 Current Account Deficit eased to -USD 19.0 billion, against forecasts at -USD 19.3 billion. Australia’s August Conference Board’s Leading Index rose to 0.8% from a downward revised 0.4% in July.

AUD/USD – Slip-sliding away, the Battler was battered anew, slumping to an overnight low at 0.7221 before settling to close at 0.7227. A dovish leaning RBA and the Evergrande situation weighed on the Aussie. AUD/USD traded to an overnight high at 0.7283.

USD/CHF – The Dollar slid to 0.9234 from 0.9277 yesterday as the haven attractive Swiss Franc continued to gain support in the current environment. Switzerland’s Trade Surplus climbed over CHF 5 billion, bettering median expectations of a CHF 4.5 billion surplus.

EUR/USD – The shared currency had another lacklustre trading session, finishing little changed at 1.1725 (1.1727 yesterday). Overnight the shared currency fell to a low at 1.1715. Overnight high traded was at 1.1785.

USD/JPY – Eased further to 109.23 from 109.36 yesterday. The Bank of Japan is not expected to change its policy at the conclusion of its monetary policy meeting today. USD/JPY hit an overnight low at 109.18 before paring its losses. Risk aversion continued to be supportive of the Japanese currency.

On the Lookout: Today’s economic data releases are few amidst two central bank rate decisions. As China re-enters the markets today after its Autumn festival holidays, the People’s Bank of China (PBOC – Chinese central bank) meets on interest rates. The PBOC is not expected to move on its 1-year and 5-year interest rates (11.30 am Sydney). The Bank of Japan will release its monetary policy statement following its interest rate meeting and decision (1 pm Sydney). The BOJ Press Conference follows (4 pm Sydney). The Bank of England meets on policy tomorrow.
Data releases kick off with Australia’s Westpac August Leading Index (no f/c, previous was -0.12%). Switzerland kicks off Europe with its Current Account balance (no f/c, previous was +CHF 16 billion). The US releases its Existing Home Sales for August (f/c 5.87 million from 5.99 million). The Fed Reserve FOMC Economic Projections, FOMC Statement and Press Conference are scheduled early tomorrow morning Sydney time (4-4.30 am).

Trading Perspective: It all comes down to the Fed and the timing of their bond taper which they should release after their meeting tomorrow morning. If the Fed signals that it will trim QE before end-2021, the Dollar will rise initially, then turn back lower. A taper next year will see selling pressure heaped on the Greenback. China is expected to come to the rescue of Evergrande either indirectly or directly. Ahead of these events, FX will continue to consolidate with the Greenback maintaining its overall support.

AUD/USD – Will continue to slip slide away. Even at current levels, the Aussie appears shaky. My colleague, and accurate ACY analyst Clifford Bennet has been calling the Aussie spot on.  The only supportive factor is that the speculative market continues to carry short AUD positions. Aussie traders will be watching China’s reaction to Evergrande as they return today. The outcome of the PBOC meeting is a foregone conclusion, but one can never discount any surprises. AUD/USD has immediate support at 0.7220 followed by 0.7200 (strong). The next support level is at 0.7170. Immediate resistance lies at 0.7250 and 0.7280 (overnight high 0.7283). Look for the Aussie to trade in a likely range of 0.7200-80. Could be a wild one in the Batter today. Am prepared to trade both sides of the extreme.

USD/JPY – The Greenback continued to ease against the haven Yen. Overnight, USD/JPY traded to a low at 109.183 before settling at 109.22 at the NY close. This morning USD/JPY slid further to 109.12 in early Asia. Currently USD/JPY trades at 109.14-16. Immediate support lies at 109.00 followed by 108.70. Immediate resistance can be found at 109.40 followed by 109.70. Ahead of the BOJ looking for the USD/JPY to consolidate in a likely range today of 109.00-109.70. Prepared to buy USD dips.

EUR/USD – The Euro settled at its familiar 1.1725 close in New York. Yesterday, the shared currency finished at 1.1727, and 1.1725 the previous day. EUR/USD traded to an overnight low at 1.1715. Immediate support for today lies at 1.1710. The next support level comes in at 1.1680, which is strong. A clean break through 1.1680 could see us back to the 1.1500 area. Immediate resistance lies at 1.1750 followed by 1.1780 and 1.1810. Look for the Euro to remain under pressure with a likely range today of 1.1710-1.1770. Prefer to sell rallies. The Euro should be lower but its not. On the charts, (I am not an expert technical analyst, but a former FX bank trader). I see a potential head and shoulders formation which could see significant downside should 1.1680 break.

USD/CHF – Against the Swiss Franc, the Greenback tumbled to 0.9234 from 0.9276 yesterday. Haven support and a better-than-expected Swiss Trade Surplus boosted the CHF. Overnight USD/CHF traded to 0.9225. Immediate support lies at 0.9220 followed by 0.9180 (strong). Immediate resistance can be found at 0.9260 and 0.9290. Looking for the USD/CHF to stabilise at current levels with a likely trading range today of 0.9225-0.9275. Prefer to buy USD dips today. Am wrong if we break through 0.9180.

(Source: Finlogix.com)