All Eyes on the Fed to Relieve Dollar Jitters

August 17, 2016

The Dollar Index Future (DXY)

On Tue 16th Aug, the dollar index future (September) extended the weakness it has shown since Friday. A result of the disappointing retail sales report, the lowered market expectations for a Fed rate hike, and the dovish statement made by John Williams, the president of San Francisco Fed.

The dollar index fell like a stone, from the intra-day high of 95.605 to a post Brexit referendum low of 94.355, a 1.31% fall, the second biggest intra-day fall post Brexit referendum. The dollar has weakened across the board.

The bearish momentum continued as US CPI (MoM), Core CPI (YoY and MoM), and Building Permits (MoM) in July, released subsequently, underperformed, driving the dollar index further down.

The four significant support levels were broken in eight hours, including the 38.2% Fibonacci retracement level at 95.41, downtrend line, 95.00, and 50.0% Fibonacci retracement level at 94.73. When nearing the support level at 94.35, the index bounced off sharply, as a result of the New York Fed president William Dudley’s comments, that a September rate hike is possible as labour market has shown a robust growth for two months.

It broke the downtrend line resistance earlier today, currently oscillating in the range between the major resistance at 95.0 and the downside downtrend line support, testing the resistance at 95.00 with a bullish attempt.

Upside significant resistance is at 95.0, followed by 95.20, 95.325, 95.41, 95.50 and 95.60.
Downside support line is at 94.73, followed by 94.35, 94.20 and the 61.80% Fibonacci retracement level at 94.06.

Keep an eye on the FOMC Meeting Minutes, released at 19:00 GMT+1 on Wednesday 17th August, as they will influence the market sentiment and the strength of the dollar.

GBPUSD

As the first post referendum UK CPI figures released outperformed, GBPUSD surged and broke the downtrend channel resistance at 1.2962 and the significant resistance level at 1.30.

The initial post-referendum UK Claimant Count Change and Unemployment Rate for July was released this morning. The former fell to -8.6K in July from 0.9K in June, beating expectations of 9.5K. The latter stayed unchanged at 4.9%, in line with expectations.

The better than expected figures, boosted GBPUSD from an earlier retracement, bouncing off the major support at 1.30 and testing the resistance at 1.303 again. If it is confirmed broken, the next target is at 1.305 followed by 1.307, 1.308 and 1.310.

Downside support line is at 1.30 followed by 1.297, 1.295 and 1.293.

Keep an eye on the UK Retail Sales (YoY and MoM) and Core Retail Sales (YoY and MoM) in July released at 09:30 GMT+1 on Thu 18th August. With positive figures, the resistance at 1.305 will likely be tested again, while lower-than-expected figures, will likely drive the price down and test the downside support levels.

USDJPY

As the dollar weakened, USDJPY plunged from the intra-day high of 101.283 to a post EU referendum low of 99.526, a 1.73% fall. The two significant support levels at 101.00 and 100.00 were both broken, followed by a rebound. It is currently testing the newly formed resistance at 101.00. The 4 hourly KD indicator is at a high level, suggesting a pullback.

Downside support line is at 100.70 followed by 100.50, 100.00, 99.80, and 99.50.
Upside resistance is at 101.0 followed by 101.30, 101.50, and 102.00.

Keep an eye on the FOMC Meeting Minutes, released at 19:00 GMT+1 on Wednesday 17th August, as they will influence the market sentiment and the strength of the dollar.

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