US dollar eyes FOMC decision

Currency markets range-trade overnight

It was another night of range trading for currency markets overnight, which seem reluctant to aggressively position until the FOMC is out of the way. One exception was the euro, which fell heavily on natural gas-derived recession fears. That lifted the dollar index, which finished 0.68% higher at 107.20, having bounced off rising wedge support. In Asia, it has moved 0.17% lower to 107.01. The rising wedge support is at 106.40 today, and a daily close under 106.40 signals more losses towards 1.0500 and 1.0350, potentially extending to the initial 102.50 long-term initial breakout. Resistance is at 107.30 and 108.00.

EUR/USD slumped by 1.03% to 1.0117 overnight, dogged by energy fears dragging the Eurozone into a deep recession. In Asia, it has managed to recover 0.26% to 1.0143 as the US equity index futures rally sees some modest US dollar selling sweep Asia. The fall overnight has swung the technical picture to the negative, and the multi-day resistance at 1.0275 is formidable. Only a sustained break above 1.0360 now suggests a longer-term low is in place. EUR/USD has support at 1.0100 and 1.0100.

GBP/USD had a very choppy day but ultimately settled just 0.14% lower at 1.2030, rising to 1.2050 today in Asia. The rising wedge support is at 1.1960, followed by 1.1900 and 1.1800. Rising wedge resistance is at 1.2100, followed by 1.2200. It would take a sustained break above 1.2400 to call for a longer-term low by sterling.

With US yields moving sideways overnight, USD/JPY edged higher to 136.95 overnight, where it remains in Asia. A loss of 135.50 sets the scene for a larger downside correction, potentially reaching 132.00. Initial resistance is distant at 138.00, followed by 139.40. The US/Japan rate differential continues to hold USD/JPY in its thrall, and it is clearly marking time until tonight’s FOMC.

Weaker US stock markets saw AUD/USD and NZD/USD ease overnight to 0.6937 and 0.6230. Weaker inflation data has pushed AUD/USD down to 0.6920, with the kiwi unchanged. The technical picture for both remains constructive as both currencies stay well clear of their breakout lines at 0.6790 and 0.6145. Asian currencies eased slightly overnight before booking some slight gains today. As a whole, the Asian FX space is almost unchanged and is in a holding pattern ahead of the FOMC this evening.

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