US Dollar plunges as the Fed stays dovish

Intermediate
  • The US Dollar has been weakening across major global currencies over the past 1-2 weeks, mainly driven by two factors.
  • A shift to a more “risk on” environment with global stocks rallying has seen the US$ decline, as it is not in as great a demand as a safe haven.
  • Furthermore, and more notable over the past 24 hours has been the anticipation of a more dovish Federal Reserve, ahead of the meeting on Wednesday.
  • The Fed delivered a far more dovish tone than even the market had expected on Wednesday, projecting no further rate hikes this year and ending the steady decline of its balance sheet in September.
  • This encouraged a far more aggressive selloff on the US Dollar and here we focus on the USDJPY and EURUSD Forex rates.

USDJPY bias stays lower

A post-FOMC selloff Wednesday through the firm 110.98 support level and then already Thursday to push through our 110.75/63 area, to reinforce Tuesday’s roll lower through modest support, for a small topping pattern and now a more negative tone, to aim lower into Thursday.

The late February firm rally above key 111.41 switched the intermediate-term outlook to bullish, BUT risk is growing for an intermediate-term shift to neutral below 109.66.

For Today:

  • We see a downside bias for 110.32/23, then 109.93; break here aims for key 109.66, then 109.23.
  • But above 111.11 opens risk up to 111.70 and maybe 111.90.

Intermediate-term Outlook – Upside Risks: Whilst above 109.66 we see an upside risk for 113.71.

  • Higher targets would be 114.55 and 115.00
  • What Changes This? Below 109.66 shifts the outlook back to neutral; through 108.47 is needed for a bear theme.

4 Hour USD JPY Chart

usdjpy chart

EURUSD intermediate-term shift back to a range; upside risks

We have stressed in our recent reports to clients that “we see an intermediate-term bear trend, BUT above 1.1420 would see a neutral theme again” and Wednesday’s post-Fed Meeting surge above here sets a broader range we see as 1.1509 to 1.1175, with risks skewed towards an intermediate-term bullish shift through 1.1509.

Furthermore, the subsequent resilient consolidation after the surge post-Fed, holding support at 1.1393, keep risks higher for Thursday.

For Today:

  • We see an upside bias for 1.1448; break here aims for 1.1488, maybe even closer to key 1.1509.
  • But below 1 1393 aims at 1.1355, which we would look to try to hold.

Intermediate-term Range Breakout Parameters: Range seen as 1.1509 to 1.1175.

  • Upside Risks: Above 1.1509 sets a bull trend to aim for 1,1570/1.1621, 1.1815/52 and 1.1996/1.2000.
  • Downside Risks: Below 1.1175 sees a bear trend to target 1.1119, 1.1000 and 1.0839.

4 Hour EUR USD Chart

EURUSD Chart

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