Slightly less dovish is clearly the new hawkish
As a few commentators correctly noted in the wake of the FOMC last night, slightly less dovish (if at all) is now the new hawkish. In the wash out, that’s essentially what the reaction last night to the latest FED decision came down to. Having picked the bones out of the statement, the wording as compared to last month’s statement is vastly unchanged, save for literally a word or three. But on this basis alone most have taken the FED to be now gearing up for the taper almost imminently, with some even being so bold as to look for a move in December. Fools, the lot of them. What is ACTUALLY happening, is a little something known as mean reversion. Pure and simple. The DXY is coming back folks, not in a massive way, but enough to get it back to some semblance of an average. This is not based on fundamentals, economic data or even which way the wind is blowing, but rather an almost simple principle of physics or as it’s known in FX, “swings and roundabouts”. Only a sustained break and close above said mean will negate the recent trend of USD sales and general bearishness. As was the case in the last 3 weeks however, the market will find a reason once more to sell the greenback, if only (as mentioned here on several occasions recently) to cement a trend of some semblance into yearend on the back of which to generate some additional alpha.
Otherwise it’s important to note that today is month end and as always flows on the day tend to muddy the overall picture and paint some rather ugly charts thus confusing the general nature of price action.
Moving on and elsewhere, the RBNZ along with the BoJ left rates and policy unchanged and neither accompanying statement etc deviated too much from expectations, save for the RBNZ governor Wheeler hinting that rates may indeed look to be raised sometime next year, but his hint wasn’t that strong…
On the day I think EURUSD finds a base into the 1.3650 area, while the topside will be a struggle as last night’s events get digested.
The Cable is doing a bit of mean reversion of its own and looks for 1.5980/50, although I think those levels will be a bridge too far on the day. The topside is likewise limited and should be capped around the 1.6050/70 area.
The AUDUSD will keep most guessing, but once again with more options expiries around that 0.9500 level, we too should stay pinned once again.
The USDJPY is heading lower again folks and fading rallies when presented with the opportunity is definitely the way forward.
Those that have been keeping an eye on the CHFJPY, should be smiling as the range continues to work and w while we’re roughly in the middle of it currently, buying dips once again sub the 108.50 level seems to be a decent play.
Helmets on and good luck out there today folks.