In a week packed with economic events, we have had very strong movements on some currency pairs, especially the USD crosses. As per usual, the Forex market is very volatile, offering great trading opportunities in every major session.
In this review, we will cover the major movers this week and potential trading opportunities based on technical and fundamental alignment.
On Wednesday the Federal Reserve raised its key interest rate for the third time this year, pushing the Fed funds rate to a range of 2.00%-2.25%, and signaled one more hike in 2018, most likely in December.
In Federal Open Market Committee statement (the primary tool the Committee uses to communicate with investors about monetary policy), the key highlights were:
- The removal of 'accommodative monetary policy' (this has been a dovish signal in the past).
- Risks to economic outlook appear to be 'roughly balanced'.
- The interest rate on excess reserves were set at 2.20%.
- Gains in the jobs market have been strong.
The USD/JPY has been in a steady uptrend, following candlestick patterns that showed a potential for a continuation. The hike was widely expected by analysts and traders so the USD/JPY continued with uptrend. On September 7, the price broke through the green retracement trend line and the move was supported by the EMA89. The continuation was spotted exactly at the Admiral Pivot Point. Following a day after a FED decision, the price reached R2 resistance and tested 113.40 as a new resistance zone.
As we showed in the previous analysis, the USD/CHF went to 0.9760 as the FED decision was fully priced in the markets. The downtrend that had been in place has broken through the green trend line after bouncing from the Admiral Pivot Point.
Mario Draghi delivered a speech at the European Systemic Risk Board annual conference on September 27 in Frankfurt. Draghi welcomed the efforts of EU policymakers to address risks in the real estate sector and banking sector as well as structural risks in member states with macroprudential tools. However, nothing has helped the EUR as it continued falling against the USD, reaching the 1.1650 support level. Maybe one of the reasons for the further EUR/USD drop was also Mr.Draghi mentioning nothing on interest rates or the economic outlook.
On Wednesday September 26, the RBNZ (Reserve Bank of New Zealand) decided to put interest rates on hold at 1.75%. The RBNZ Governor decides where to set the rate after consulting senior bank staff and external advisers. Short-term interest rates are the paramount factor in currency valuation, with traders looking at most other indicators simply to predict how rates will change in the future.
These were the main points from the statement:
- The official cash rate (OCR) is expected to remain unchanged into 2020.
- Following this, the direction of the next OCR move could be up or down.
- Employment is at a sustainable level.
- Consumer price inflation remains below the 2% mid-point of the Reserve Bank's target, necessitating continued supportive monetary policy, and the outlook for the OCR assumes the pace of growth will pick up over the coming year, assisting inflation.
- The projection for the New Zealand economy, as detailed in the August Monetary Policy Statement, is little changed.
- Robust global economic growth and a lower New Zealand dollar exchange rate is expected to support demand for New Zealand's exports.
The reaction was a bit disappointing and the NZD/USD continued with its downtrending pattern.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.