Although there were only three dissenters at the last FOMC meeting, the minutes revealed that rest of the committee were closer than we thought to being swayed towards a hike. This meant that the week was characterised by USD buying as the market started dreaming of a November hike! That is exactly what it is – a dream – in my opinion. With the Fed Fund Rate pricing in probability of around 70% for a December hike, this is the most likely scenario, although seeing will still be believing.
The major concern for the Fed is the lacklustre inflation, and levels nearer the 2% target are desirable before rubber stamping a hike. Renewed optimism that oil will trade at higher prices over the next 12 months means that in theory we should have higher inflation anyways, but the market eagerly awaited retail sales (another cursor for higher inflation). The number was an impressive one but did not beat expectation and PPI only narrowly increased, this slowed USD momentum.
Enter Fed Chair Yellen on a Friday night, she still sounds undecided as to when we will see a hike – while she didn’t suggest that there will not be a hike this year, her speech did sound dovish to me and so this may leave the market in a state of flux come Monday morning.
We finally broke out of a tight trading range in the EURUSD this week, once the pair broke through the lower parameter of our triangle, the move was sharply down. The pair tried desperately to hold onto the 1.1000 handle but succumbed to the pressure in the last 30 minutes of trading for the week. The “magic” level to watch this week will be 1.1030, if any early week bounce is unable to break above that level – it could mean sellers will hold the initiative in the near term.
The GBPUSD felt boring this week after the flash crash last week. A sharp move lower on Tuesday was the exception as traders looked to be trading on both side of the market. As was the case a couple weeks ago, the mere fact that buyers can’t move this pair suggests that the risk is still to the downside. I have a hunch that we may only see buyer’s conviction around the lower levels of the flash crash, and that level is around 1.1500 – this means that recent price action could merely be a consolidation before the next move downwards. There are still too many fundamental factors in play for me and I continue to stay away from this pair.
There have been multiple attempts at 104.47 in the USDJPY, thus far we have seen this level keep the lid on and has presented numerous trading opportunities. On the lower end we have also seen support building at 103.80, if that level holds again we may see another attempt at resistance. I am going to tread water cautiously here as the “lid could pop” higher next week.
Both the AUDUSD and the NZDUSD spent most the week tracking lower, the AUDUSD did stage a late rally on Friday, both pairs closed the week at critical levels and one get the impression that both could open lower on Monday.
The USDCAD often trades by the moniker of, “Loonie” and trading this week in the pair lived up to that tag – it was at times Loonie. One would have been forgiven for thinking that CAD had broken correlation with the oil price as in the early week it traded in the “wrong direction” to oil. It then more than made up for it on Friday! 1.3250 – 1.3300 has proved to be resistance for most of the year, it failed to break on every occasion and I suspect that resistance may move lower in the coming weeks – especially with new found optimism in the oil price.
South Africa seems to be in a state of uncertainty right now, will Fin Minister Gordhan face fraud charges or won’t he? Will President Zuma quash the State Capture Report or won’t he? There are just too many unknowns for me, if either of the two above were forced out of their positions how would the market react? How big a role will this latest debacle play when the credit agencies meet again? Over time the ZAR has shown the ability to fight back with the resilience of a heavy weight boxing champion, I somehow get the impression that it is getting to a point where picking ourselves off the canvas is not going to be possible. It is for this uncertainty that I will walk away from this pair for now.
Again – this is all next week’s problem.
Weekly FX Ranges 17/10/2016 – 21/10/2016
EURUSD
Resistance 1.1160 – 1.1213
Support 1.0935 – 1.0912
GBPUSD
Resistance 1.2450 – 1.2525
Support 1.2088 – 1.2026
AUDUSD
Resistance 0.7635 – 0.7700
Support 0.7500 – 0.7440
NZDUSD
Resistance 0.7200 – 0.7246
Support 0.7010 – 0.6966
USDCAD
Resistance 1.3270 – 1.3300
Support 1.3040 – 1.2927
USDJPY
Resistance 104.19 – 104.50
Support 102.80 – 102.30
USDCHF
Resistance 0.9900 – 0.9950
Support 0.9800 – 0.9742
USDZAR
Resistance 14.4900 – 14.6500
Support 13.9300 – 13.8020
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