USD Strengthens As Taper Announcement Expected

Sep 20 21, 08:14 GMT

The USD begun the week on the front foot, as expectations for a possible announcement by the Fed for a tapering of its QE program, intensified. It should be noted that the Fed’s interest rate decision on Wednesday is to provide also a new dot plotand the bank’s new projections. On the flip side Gold’s price reached a one-month low during today’s Asian session pressured by the strong USD, yet USD yields showed little upward price movement in the past few days. US stockmarkets tended to retreat, as the market may prepare for a tighter monetary policy by the Fed while at the same time the White House warned of a possible recession, adding to the bearish sentiment. It’s characteristic that US Treasury Secretary Yellen on Sunday, called once again for Congress to raise or suspend the US debt ceiling, or the government risks running out of money to pay its obligations around mid-October. On the other hand, GBP pound retreated against the USD as well as JPY and EUR, despite markets carrying hawkish expectations for BoE’s interest rate decision next week and a string of positive data in the past week. The Loonie reached its weakest point against the USD in almost a month, as the Canadian elections are to be held today and uncertainty remains high as to which party will win, while oil prices retreated on Friday and during today’s Asian session.

The USD Index rallied, breaking the 92.85 (S2) and the 93.20 (S1) resistance lines, both now turned to support. We tend to maintain a bullish outlook for the index as long as it remains above the upward trendline which started to from since the 16th of September. Please note that the RSI indicator below our 4-hour chart is above the reading of 70 which confirms the bulls’ dominance on the one hand, yet on the other may imply that the index is overbought and a correction lower is imminent. Should the bulls actually maintain control over the index, we may see it breaking the 93.70 (R1) resistance line aiming for new highs, yet should the bears take over, we may see the index, breaking the 93.20 (S1) support line, the downward trendline and aim for the 92.85 (S2) support level.

GBP/USD on the other hand dropped breaking the 1.3750 (S1) support line on Friday. We tend to maintain a bearish outlook for the pair given that the RSI indicator below our 4-hour chart runs along the reading of 30. Should the bears actually maintain charge over the pair’s direction we may see it breaking the 1.3600 (S2) support line, aiming for lower grounds. Should the bulls take over, we may see cable breaking the 1.3750 (R1) resistance line, the downward trendline and aim for the 1.3875 (R2) level.

Other economic highlights today and the following Asian session:

During today’s European session, we note the release of Germany’s PPI rates for August, while during tomorrow’s Asian session we get RBAs’ latest meeting minutes from Australia.

As for the rest of the week

On Tuesday, RBA is to release the minutes of its last meeting and Sweden’s Riksbank is to release its interest rate decision. On Wednesday, we get from Japan BoJ’s interest rate decision, Eurozone’s preliminary consumer confidence indicator for September, while the highlight of the week maybe may be the release of the Fed’s interest rate decision. On Thursday, we get the preliminary PMI readings for September from Australia, France, Germany, Eurozone, UK and the US as well as the US weekly initial jobless claims figure, and Canada’s retail sales growth rate for July, while on the monetary front we note interest rate decisions from, Switzerland’s SNB, Norway’s Norgesbank, UK’s BoE and Turkey’s CBT. On Friday, we get New Zealand’s Trade Balance for August, Japan’s CPI rates for August, Japan’s preliminary Jibun bank manufacturing PMI figure for September and Germany’s Ifo indicators for September, while on the monetary front Fed Chairman Jerome Powell is scheduled to speak.

USD Index H4 Chart