Dollar Ready for a Rebound Post FOMC

Points to consider in this Forex article:

• The Dollar’ post FOMC selloff has cooled with most Forex markets in the middle of the ranges.
• More Federal Reserve members are scheduled to give speeches.
• Bank of England policy maker Forbes has eased Brexit fears.

This week saw several key central banks give monetary policy decisions. In the wake of the BOJ’s stimulus twist and the Federal Reserves hold on interest rates, we saw two market moves come into play. First, we saw a bid for risk and a selloff of the US Dollar. Both of these trends played into Thursday’s trade session but slowed down as the day progressed. We saw technical boundaries come into play and a rise in skepticism to offset the shallow fundamental backdrop. Looking at the risk move, the S&P 500 is less than one percent from its record high. But there is a black hole of volatility from July into August. We are seeing risk favorite ETFs, like Emerging Market, High Yield Fixed income and yen currency crosses approaching key resistance boundaries. There is a lack of event risk on the horizon to help these asset classes gain traction.

Looking at the Forex world, traders should follow the Dollar into the close of trading today. After the FOMC hold on rates, the almighty Buck is down against most of trading partners. Only the New Zealand Dollar has outperformed against the Dollar. Looking at other Dollar Forex partners, we are seeing them trade within the middle of their familiar ranges. These Forex markets include the: EUR/USD, NZD/USD and the Loonie or USD/CAD. Other currency pairs are nothing but cannon fodder for an investor looking for a bounce with fundamentals. The AUD/USD is rapidly approaching a key trend line resistance that goes back 21 month and caps the larger wedge in play. See the below weekly MT 4 chart. This trend line has capped gains over that time.

There is a round of four Federal Reserve Board speakers coming up. Three are speaking on a panel and they should provide some context on the next rate decision, due out next month. This panel discussion occurs next week, on Wednesday. These four speakers are the hawks on the Fed. This should increase volatility with the USD/JPY Forex market. However, it will not be the band aid solution for those looking for directional trading.

Turning to the Bank of England, there has been some rhetoric from members, but it was Kristin Forbes who suggested that the Brexit impact might not be as impactful on economic forecasts as previously thought. These forecasts can now see an upward revision and have an impact on the EUR/GBP, GBP/NZD and the Cable (GBP/USD).