The September FOMC meeting was heralded as one of the most important central bank meetings in years and market expectations varied significantly. Not just the size of any potential tapering, but also whether the Fed would alter its economic projections or forward guidance around the threshold for future rate hikes.
The moves in the forex market after the meeting have been one way traffic across the board, with USD longs being closed aggressively. The Fed was largely expected to cut its bond buying program by $10 billion; that didn’t eventuate. Most weren’t expecting a change to its forward guidance and while that did materialise, they mentioned that rates would not be increased until unemployment was ‘significantly’ below the 6.5% threshold. For all intents and purposes they may as well have cut the threshold to 6%. The Fed also downgraded its economic projections, although this was largely expected.
Looking at some of the moves in the market, AUD/USD hit a high of 0.9529, EUR/USD 1.3543, while USD/JPY traded to a low of 97.76. NZD/USD was actually the best performer on the session, rallying 1.6% and technically it looks very positive. AUD/USD as well looks like it wants to trade higher, having closed at 0.9520; ten pips above the 38.2% retracement of the April to August sell-off at 0.9510. Momentum indicators suggest the pair will be supported within a bullish trend and while the pair looks overbought in the short-term, we feel pullbacks could present themselves as a buying opportunity. Key support comes in at 0.9285 (the 38.2% retracement of the August to September rally and September 17 low) and we feel traders who are long could look to move stops on open positions below here.
On EUR/USD, the pair has closed convincingly above the June high of 1.3417 and what’s more, the MACD has closed above the zero line. Price action is bullish and while profit taking can’t be ruled out, a move above 1.3600 could be the cards in the short-term.
One of the interesting aspects of EUR/USD being above 1.35, cable 1.61, AUD/USD 0.95 and USD/JPY below 98.00 is how other centrals such as the RBA, ECB, BoJ and BoE react to these moves. The ECB said back in February that any future rate cuts would be partially driven by the EUR’s strength and EUR/USD was subsequently trading at 1.3700 then. With EUR/USD above 1.35, the prospect for EUR negative rhetoric should increase. The same applies to AUD/USD and USD/JPY, and the prospect that the associated central banks talk down their currencies is real. With this in mind, traders (more than ever) need to be aware of any central bank officials due to speak. We highlight therefore that in Asian trade we get to hear from BoJ member Takahide Kiuchi (11:30 AEST) and at 18:30 AEST BoJ Governor Haruhiko Kuroda.