As markets are gearing towards the FOMC meeting decision tomorrow, the dollar is not finding much comfort as it continues to get backed into a corner. And as we look towards European trading today, we are starting to see the dollar be put on the ropes as it continues to dribble lower in the run up to the main event this week.
Traders are still betting on a more dovish Fed and with Trump’s takeover of the central bank continuing to take shape, it only solidifies that conviction.
As we look to European trading later, the dollar remains in a weak spot with some key charts to be mindful of. EUR/USD is one of that as it stays on approach to 1.1800, up another 0.2% today to 1.1783 currently.
The pair has found it tough to get on with a firm break above the 1.1800 mark since the end of June. However, buyers have not relented all too much despite some headwinds developing for the euro in recent months. In particular, the single currency has managed to navigate through the political concerns in France rather well – at least for now.
But with a potential for a technical break as seen above, this will be one to watch in the aftermath of the Fed this week. A break above 1.1800 will free up room towards 1.2000 next before potentially revisiting the 2020 and 2021 highs just above 1.2200.
Besides that, we also have GBP/USD now sneakily climbing to its highest since early July as it nudges above the late July and August highs around 1.3585-95. The pair is up another 0.2% to 1.3620 currently with eyes on the June highs closer to 1.3770.
And in similar vein to a breakout in the euro, the franc is also keeping poised against the dollar ahead of the key risk event tomorrow.
USD/CHF has been towing the line near 0.7900 for a while now and a drowning dollar could yet finally seal the deal for a break under that, with sellers having tried since early July. So, this will be another one to watch in the days ahead.
And lastly, do keep an eye out for AUD/USD as the pair is trying to hold the recent upside break in chase of a stronger leg higher.
The pair is now trading up to 0.6670 levels, its highest since November last year. And more importantly, it is running up against a test of its 200-week moving average of 0.6675 currently. A firm break above that will see price action return above both its key weekly moving averages for the first time since 2022. That will be a notable shift in momentum, if we do get to that in trading this week.
Besides the above, we’re seeing some consolidation phases for USD/JPY and USD/CAD over the past few weeks. The Fed has the potential to get traders to shake that off, so that might offer something to work with in the second half of September trading perhaps.
As a reminder, traders have fully priced in a 25 bps rate cut for tomorrow with ~67 bps worth of rate cuts priced for year-end. Will the Fed surprise with a more hawkish communique and bail the dollar out of this sticky situation? Or will we see the greenback fall further to fresh lows this year in the aftermath?
This article was written by Justin Low at investinglive.com.