Dollar index finds stability at 79

It was a quiet session in the FX space overnight, with the main theme being the USD continuing to taper off ahead of the FOMC meeting.

There were a couple of notable data releases including industrial production and pending home sales data. Pending home sales (-5.6% vs +0.5% exp) was a big miss, while industrial production just edged expectations at +0.6%. The US dollar index is just holding onto 79 and looks extremely fragile, with traders not wanting to be caught on the wrong end of the trade. Some actually feel the DXY is exhibiting signs of indecision which could lead to a reversal in the short term.

USD/JPY maintains tight range

A good indication of where sentiment is ahead of the Fed and BoJ meetings is USD/JPY. The pair is holding at 97.71 in anticipation of stimulus from Japan on Thursday. Yesterday I wrote about the possibility of the BoJ using the timing of its meeting to its advantage, given the Fed goes first. Should we get dovish comments from the Fed which weigh on the USD, then the BoJ could potentially deliver a result which would aid yen weakness. There have been several calls for further stimulus from Japan, particularly with the sales tax hike also on the cards. USD/JPY is in a fairly tight range, with support in the 97.50 region which is the bottom end of the gap from yesterday’s open. The top end of this range is at 97.80; which is near-term resistance.

AUD dips in Asia

AUD/USD experienced a modest drop this morning from around 0.957 to 0.954 on the back of some jaw-boning by RBA Govenor Glenn Stevens.

“At some point in the future the Australian dollar will be materially lower than it is today,” Mr Stevens said.

While this is negative for the AUD, there is no time frame and it certainly won’t be until tapering commences. Given Mr Stevens basically said the exchange rate is out of his control and will be highly dependant on US policy, I still feel we’ll maintain a fairly tight range until the FOMC meeting. Support in the near term is at 0.95.

Cable sliding in Asia

There is some GBP/USD selling in Asia today, with no real catalyst for the sell-off. Cable slipped from 1.614 to 1.606, with flows starting to come back into the USD. Perhaps some traders are protecting themselves against a potential surprise by the Fed. Risk has run a long way, and at such depressed levels some traders will be looking to capitalise.

We have quite a number of releases to look out for later today, with net lending to individuals, mortgage approvals and M4 money supply due out of the UK. It’s a fairly big night in the US with retail sales, PPI, consumer confidence and business inventories.

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