Equities dominated the headlines for Monday. What did Tuesday bring?

Well, initially we had a mild reversal of Monday’s FX moves with EURUSD drifting back to 1.1075 and USDJPY to 108.84. This took EURJPY to 120.60 a good 40 points off its earlier highs.

GBP would have to deal with confirmation that a December general election would indeed go ahead. Despite an initial sell-off to 1.2807, we were back to yesterday’s close of 1.2860 as the US day got going.

Gold continued its move lower from Monday trading down to $1,484 as US equity markets eye a marginally lower open. All eyes, of course, remain on the Fed rate announcement.

As the US day got going, equity markets turned positive. EURUSD would rally to 1.1118 and GBP to 1.2905. EURJPY would touch 121.05.

But with the Federal Reserve interest rate decision looming, the markets were happy to slow to a grind. EURUSD managed to hold above 1.1100 but GBPUSD slipped back to 1.2860.

Equities turned lower although the S&P would close just 2.5 points lower from yesterday’s all-time high close.

Gold would benefit from the drift lower in stocks, rallying back to $1,489 but USDJPY would ease back down to 108.80. For AUD, NZD and CAD it would be a mixed session with CAD weakening against the USD back towards 1.3100, while the antipodeans made some mild gains.

All of this, of course, could change very dramatically on Wednesday with the Fed. Expectations are for a 0.25% cut but of more interest will be the guidance given by Chairman Powell.

Ahead of the FOMC meeting tomorrow, I thought it was worth taking a look at the USD index or DXY as it is sometimes referred to. We have looked at this before and have noted a long-term up-channel going back to mid-2018.

As you can see we are still in this channel but it should be noted over the past month or so the USD has given up some ground.

GBPUSD has rallied from 1.2100 to 1.3000 at the extremes. EURUSD from 1.0900 to 1.1100. And USDJPY from 105 to 109. Intuitively we would expect the DXY chart to show some near term weakness.

Are the Fed rate cuts beginning to weigh on the USD? Will another rate cut put the USD under further pressure and even potentially push it through the bottom of this channel? All will be revealed in less than 24 hours, but this is a chart I would keep a close eye on.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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