• Dollar Toppled by Fed’s Monetary Policy Statement but is the Pressure Permanent?
  • Euro Bulls Placated by Sufficient Demand on Sovereign Bond Sales, Portugal Auction Ahead
  • British Pound Dives after Government Reports its Worst August Deficit on Record
  • Canadian Dollar Saved from Weak Inflation Data Showing by US Event Risk Distraction
  • New Zealand Dollar Holds Steady Through Unexpected Increase in Current Account Deficit
  • Japanese Yen: Officials May be Encouraged about FOMC Risk Response but what about USDJPY?

Dollar Toppled by Fed’s Monetary Policy Statement but is the Pressure Permanent?

The Federal Open Market Committee’s (FOMC) rate decision and corresponding policy statement would prove a market-moving event for the financial markets Tuesday. However, the influence the fundamental driver would exhibit over the US dollar was significantly different than the impact that we would note across the broader capital markets. To get a sense of the speculative response to the session’s developments, we can refer to the ever-sensitive S&P 500. While equities traders are just as savvy as their FX counterparts, the limitations to taking bearish positions typically streamlines the performance of the benchmark index to the prevailing sentiment: a rise in risk appetite encouraging buying and a rally; while a slump in sentiment encourages broad selling. With this in mind, we take stock of the immediate rally to a four-month high directly after the policy authority released its assessment and the subsequent retracement that closed the session in the red. In contrast, the greenback’s response to the developments proved to be more permanent. After the release, the Dollar Index suffered a meaningful break of 81- support and maintained its bearing with an eye to a floor around 80 that marks a six-month low. Among the dollar-pairs, the impact was just as remarkable. EURUSD put in for its biggest drive since July 1st and closed in on the August 6th swing high. At the same time, USDJPY finally broke from its intervention-defined congestion and slipped back to 85. This was a significant move; but the next step will carry more weight.

This is another sign that currency and speculative interests continue to deviate – a correlation that has otherwise been one of the touchstones to trading the dollar. To understand the greenback’s clear response to the risk appetite drive but ignorance to the subsequent reversal; we need to fully appreciate the event risk. Heading into the announcement, economists and market participants were heavily expecting the group to maintain their bearings and perhaps take on a little more dovish tone. And, the outliers in this case were expecting an immediate expansion of stimulus through an increase in purchases of Treasuries, agency debt and other assets that would push the current cap beyond the $2 trillion ceiling. What was realized fell somewhere in between these two outcomes. The central bank did not change its target rate or its stimulus program; but some of the commentary did strike a disconcerting tone. In the statement, the Fed noted that the pace of recovery and job growth had “slowed in recent months” and inflation was “somewhat below”” the level consistent with promoting full employment and price stability. What really hit a nerve though was the remark that the group was “prepared to provide additional accommodation if needed.” For a market that is highly sensitive to such dovish and bearish commentary heading into the release, this is meaningful. Yet, from an objective standpoint, there is very little in this verbiage that deviates from what has been said in previous post-meeting statements and at the Jackson Hole Symposium four weeks ago. Is the central bank closer to expanding stimulus Tuesday afternoon than it was the day before? No. Nonetheless, the implications this has for growth and fiscal troubles going forward are tangible. That said, a hard turn to risk aversion could easily put the dollar back on pace.

Looking ahead to tomorrow’s session, expect to see reverberations of today’s event risk. The dollar’s proximity to critical support will put the market on edge. And, as for the housing data on deck, it will do little more than confirm the sector is acting as an anchor on the economy.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Only USDJPY Heads of Significant Opportunities in the Yen Crosses

Euro Bulls Placated by Sufficient Demand on Sovereign Bond Sales, Portugal Auction Ahead

Once again, it is difficult to separate the euro’s unique fundamental strength from the indirect influence the currency experiences from volatility in the dollar and underlying investor sentiment trends. However, we do know that there was significant event risk through the morning. Having far more influence that a mere indicator, Tuesday’s primary concern was the performance of the European sovereign debt auctions. Ultimately, the Irish, Spanish and Greek sales were fully subscribed (sold all the debt intended). This in itself is considered a positive development as it is signifies the absence of a crisis. However, the historically high yields and ambiguous presence of the ECB should preserve our skepticism. Tomorrow, the focus will remain on financial stability as Portugal is set to auction. Take note, they increased their deficit assessment today.

British Pound Dives after Government Reports its Worst August Deficit on Record

The British pound struggled most of its major counterparts Tuesday (the most notable exception being the dollar). This weakness can be attributed to the bigger-than-expected increase in the August budget deficit to a record 15.3 billion sterling. Why this is so important: fiscal responsibility has been a big selling point for the UK. In the next 24 hours, the BoE minutes will refocus another primary driver: interest rates.

Canadian Dollar Saved from Weak Inflation Data Showing by US Event Risk Distraction

Not long ago, the Bank of Canada killed one of the primary fundamental rallying points for the loonie: the potential for rate hikes that push the nation’s yield to a significant spread beyond its major counterparts. This dovish turn was reinforced when the August consumer-based inflation figures unexpected slowed to a 1.7 percent clip. Up next: a broad economic activity assessment with leading indicators and retail sales.

New Zealand Dollar Holds Steady Through Unexpected Increase in Current Account Deficit

Oftentimes, the New Zealand economy’s performance is overlooked because its status as an investment currency is so prevalent. However, yield is tied to the nation’s health. Release early Wednesday morning was a second quarter current account balance that showed an outflow of NZ$880 million that lifted the deficit-to-GDP ratio to 3.0 percent (the first increase in six quarters). Tomorrow we will get 2Q GDP.

Japanese Yen: Officials May be Encouraged about FOMC Risk Response but what about USDJPY?

Japanese officials must be encouraged by the rise in risk appetite – or at least the lasting advance of most currencies against the Japanese yen. This helps in the effort to lower the currency without having to resort to intervention. However, where are they looking specifically? USDJPY actually slipped back below 85 in the early Asian session and that impacts the rate with China. Keep an eye on this situation.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

NZD

22:45

Current Account Balance (2Q)

0.176B

N.Z. current 2Q current account deficit was the smallest in 21 years.

NZD

22:45

Current Account Deficit-GDP Ratio (2Q)

-2.4%

AUD

0:30

Westpac Leading Index (MoM) (JUL)

0.0%

Fell in June following 12-month rise.

JPY

4:30

All Industry Activity Index (MoM) (JUL)

1.0%

0.1%

Increased for third month in June.

JPY

5:00

Supermarket Sales (YoY) (AUG)

-1.2%

Fell annually in last twenty months.

EUR

9:00

Euro-Zone Industrial New Orders s.a. (MoM) (JUL)

-1.4%

2.5%

European industrial orders rose more than forecast in June.

EUR

9:00

Euro-Zone Industrial New Orders (YoY) (JUL)

16.2%

22.7%

USD

11:00

MBA Mortgage Applications (SEP 17)

-8.9%

Dipped in both weeks of September.

CAD

12:30

Leading Indicators (MoM) (AUG)

0.3%

0.4%

Increased in last fourteen months.

CAD

12:30

Retail Sales (MoM) (JUL)

0.6%

0.1%

Canada’s retail sales rose in June on appliance, electronic store sales.

CAD

12:30

Retail Sales Less Autos (MoM) (JUL)

0.4%

-0.5%

EUR

14:00

Euro-Zone Consumer Confidence (SEP A)

-10

-11

Sits at highest level since 2007.

USD

14:00

House Price Index (MoM) (JUL)

-0.2%

-0.3%

Likely fell for second month in July.

USD

14:30

DOE U.S. Crude Oil Inventories (SEP 17)

-1700K

-2489K

Crude inputs averaged 15.0 million barrels per day during the week ending September 10.

USD

14:30

DOE U.S. Gasoline Inventories (SEP 17)

0K

-694K

USD

14:30

DOE U.S. Distillate Inventory (SEP 17)

200K

-340K

Currency

GMT

Upcoming Events & Speeches

JPY

1:30

BoJ’s Ryuzo Miyao Speaks in Tokushima City, Japan

GBP

8:30

Bank of England Meeting Minutes

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE – 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

EUR/GBP

Resistance 2

1.3815

1.6375

95.05

1.0600

1.0922

0.9850

0.7635

127.60

146.05

0.8725

Resistance 1

1.3500

1.5965

89.00

1.0460

1.0750

0.9665

0.7440

120.00

140.00

0.8600

Spot

1.3060

1.5548

85.71

1.0052

1.0304

0.9460

0.7283

111.93

133.25

0.8400

Support 1

1.2500

1.5300

83.00

0.9900

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5125

80.00

0.9650

0.9700

0.7835

0.6585

100.00

119.00

0.7780

CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resistance 2

14.4500

1.8025

8.7915

7.8165

1.4945

Resistance 2

7.7500

5.7800

6.2750

Resistance 1

13.8500

1.6755

8.3675

7.8075

1.4655

Resistance 1

7.5800

5.5400

6.1150

Spot

12.7790

1.4913

7.1363

7.7639

1.3339

Spot

7.0086

5.7026

6.0537

Support 1

12.0500

1.4500

6.6950

7.7490

1.3000

Support 1

1.1650

5.3000

5.8000

Support 2

11.7200

1.3665

6.4300

7.7450

1.2500

Support 2

7.0000

5.1000

5.6000

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

EUR/GBP

Resistance 2

1.3071

1.5563

85.75

1.0057

1.0322

0.9489

0.7320

112.04

133.38

0.8405

Resistance 1

1.3065

1.5556

85.73

1.0055

1.0313

0.9474

0.7301

111.98

133.31

0.8403

Pivot

1.3063

1.5549

85.70

1.0049

1.0297

0.9467

0.7292

111.95

133.25

0.8401

Support 1

1.3057

1.5542

85.68

1.0047

1.0288

0.9452

0.7273

111.89

133.18

0.8399

Support 2

1.3055

1.5535

85.65

1.0041

1.0272

0.9445

0.7264

111.86

133.12

0.8398

INTRA-DAY PROBABILITY BANDS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

EUR/GBP

Resistance 3

1.3217

1.5721

86.72

1.0171

1.0429

0.9595

0.7394

113.62

135.31

0.8486

Resistance 2

1.3178

1.5678

86.47

1.0141

1.0398

0.9561

0.7366

113.20

134.79

0.8464

Resistance 1

1.3138

1.5634

86.22

1.0112

1.0366

0.9527

0.7338

112.78

134.28

0.8443

Spot

1.3060

1.5548

85.71

1.0052

1.0304

0.9460

0.7283

111.93

133.25

0.8400

Support 1

1.2982

1.5462

85.20

0.9992

1.0242

0.9393

0.7228

111.08

132.22

0.8357

Support 2

1.2942

1.5418

84.95

0.9963

1.0210

0.9359

0.7200

110.66

131.71

0.8336

Support 3

1.2903

1.5375

84.70

0.9933

1.0179

0.9325

0.7172

110.24

131.19

0.8315

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com