In the build up to FOMC the markets are looking more and more applicable to bullish movements and this should come as no surprise as the hawks are out in force. Markets were buoyed by news today that US Core Retail Sales m/m came in at -0.1% (-0.2% exp). PPI m/m was also flat at -0.2% m/m and all of those, and with CPI due to come out tomorrow, we could certainly see some big movements from US dollar bulls. If we do see a lift in inflation it would certainly increase bets in the market of a positive FOMC, but also a large increase in the chance of a rate hike, something the markets are eager to see materialise in the US economy, with its record low rate at present.
For me one of the key movers which I discussed yesterday was the USDJPY and it will certainly be one of the key movers during FOMC. Yesterday we saw the USDJPY see some selling as Japanese data was better than expected, but with the build up to FOMC and the fact we have seen strong tests of resistance at 114.030 a breakout here looks on the cards. Further adding support to this is that each wave up to resistance has been higher than the previous one, so the downward pressure we would normally see in a reversal is missing at present. If we do see a breakout, the USDJPY will likely look to use resistance as support as it has previously done.
Across the ocean and the Australian dollar continues to find itself under pressure in the short term and it will likely remain to do so. The obvious build up this week is centred around unemployment data which is due out on Thursday and many are expecting a positive result for the Australian economy with expectations quite high at 13.5K. I'm more inclined to believe the Australian dollar will find itself under pressure and that while employment figures have been strong in the past, they will continue to struggle to find growth in the current market environment. This coupled with a strong US economy as talked above also bodes well for AUDUSD bears in the market and we have already started to see the reaction on the charts.
What is key on the charts is the strong rejection off resistance at 0.7558 and the large push downward so far for the AUDUSD. For me here a push down through for 0.7421 seems like a real possibility but we may see some strong support here. If there is a push through then the 20 day moving average will likely be the next target shortly followed by the current bullish trend line that has been in play on the daily chart since mid January. Overall, the AUDUSD looks likely to experience some serious volatility in the coming days and FOMC will positively add more fuel to the fire when it comes to volatility.
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