"The Federal Reserve is really center stage. The issues have been debated ad nauseum. The Fed had seemed to be edging toward a hike next week before the recent Chinese developments, and the jump in capital market volatility. Indeed the subsequent tightening of financial market conditions, and the slide in the US stock market, has been more associated with easing monetary policy, not tightening it.
What interests us here is the dollar's technical condition ahead of the FOMC meeting. Simply stated, that technical condition is soft. After losing against all the major currencies but the Japanese yen last week, the dollar's heavy tone looks set to carry over into the week ahead.
The US Dollar Index retraced 38.2% of the rally from the August 24 low (~92.62) to the September 3 high (~96.62) at the end of last week. The RSI and MACDs are pointing lower and the five-day moving average is poised to fall below the 20-day average. A break of 95.00 now warns of a move to 94.60 and possibly 94.15.
We would not expect 10-year US Treasuries to move much ahead of the outcome of the FOMC meeting. Last week's range of roughly 2.12%-2.25% will likely remain intact, barring a significant data surprise or a sharp increase in stock market volatility."
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