FX markets started the week on a slow note this week. This was due to the Labor Day bank holiday in the United States. This meant Monday’s trading was pretty slow in the sense that ranges were fairly tight. However, as of Tuesday when New York traders started to pour in, the price action picked up.
The opening of the equity markets saw the Dow Jones jump three hundred points on nothing at all, and this made the USDJPY pair move more than one big figure (one hundred pips) above the key 120 mark hours earlier.
Market participants are preparing for what seems to be the most important economic event of this fall 2015; The September FOMC (Federal Open Market Committee) meeting and interest rate announcement.
It is widely expected that the Fed will hike the rates for the first time since 2008 at this meeting. Expectations are pushing the US dollar higher across the board, but despite this, and Fed having plenty of reasons to hike, I would be a bit skeptical as external forces may push the Fed to delay the hike.
I am talking about China, of course, as the recent devaluation of its own currency, the Yuan, started a process of winding down the FX reserves and this poses a threat for the US treasury market as the Chinese are changing from net buyers to sellers.
This of course represents a strong headwind for the US economy in the period to come. The Fed may be forced to wait a little longer to see the real intentions of the Chinese.
On top of the above, Mrs. Yellen is dovish. She initially stated that she’s in favor of a December rate hike instead of September. As she is the Chairwoman, it may be that she’s getting a point across that’s worth being heard.
As for the currency pairs, I really like the AUDUSD pair to the upside as the price seems to have been breaking higher out of a falling wedge pattern. From this moment on, the gates seem to be open towards much higher values.
When it comes to USDCAD, the Bank of Canada is re-assessing the Canadian economy and recent events. My take is that the tone will be neutral. I am still a net seller in USDCAD from these levels and target a move into the 1.28 area.
The Euro as a whole is bullish at these levels as both the EURUSD and EUFGBP are desperately trying to break higher. A move above 1.1350 and 0.7350 respectively, should be confirmation of the above-mentioned bullishness.
All in all, expect a week that will be dominated by FOMC positioning and the dollar should be the main flow driven currency out there.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
