Dollar on hold ahead of FOMC

Asian currency markets trade sideways ahead of the FOMC

Holidays in Japan and mainland China are torpedoing volumes and volatility in Asia currencies markets today, with the region content to remain in a holding pattern ahead of tonight’s FOMC. Overnight, the dollar index traded in quite a wide range, moving lower intraday as the euro made an unsuccessful recovery attempt. Ultimately, that reversed, leaving the dollar index closing just 0.14% lower at 103.45. In Asia, it has crept higher to 103.50 in directionless trading.

Ultimately, it is what the FOMC says, and not what it does, that will determine the short-term direction of the US dollar. Any signs of wavering hawkishness in the statement could spark a decent correction lower for the dollar index. It has support at 103.00 and resistance at 104.00. The multi-year triangle’s top lies at 102.50 today, and failure signals a deeper correction to 101.00.

EUR/USD is consolidating in a 1.0500 to 1.0600 range this week and with the economic and political risks around the Russia/Ukraine conflict in full cry, any relief rally tonight should top out between 1.0700 and 1.0800, the multi-decade break lower. A hawkish FOMC likely sees EUR/USD test 1.0500 and it remains on track to test 1.0300. Its rally quickly faded overnight, and it is unchanged at 1.0520 in Asia.

GBP/USD is bouncing around in a wide 1.2400 to 1.2600 range. Sterling faces significant risks in the shape of the FOMC and BOE rate decisions. The worst scenario would be a hawkish FOMC meeting, with still-cautious BOE policy guidance. That likely sees GBP/USD testing 1.2200. Sterling is overdue for a relief rally even though the bigger technical picture remains grim. Rallies will likely be limited to the 1.2700/1.2800 region.

USD/Asia has fallen slightly overnight as a slew of holidays and the impending FOMC have prompted investors to reduce US dollar long positions. USD/CNH has led the correction lower, falling to 6.6400 overnight where it remains today. The FOMC statement will determine whether the Asian FX recovery continues or stops dead in its tracks.

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