Traders are comfortable with post-Fed dollar

EUR USD (1.2820)
The long-awaited – almost fabled – pause in the Fed’s tightening policy finally took place last night. The initial reaction was a rally to a 1.2895 peak. This was probably the stoploss buying of the ‘residual’ dollar-bulls that we discussed yesterday. And that was it. The euro simply oscillated thereafter around the pre- Fed level and closed unchanged on the day. The Fed statement was generally perceived as less hawkish than expected; hence some euro longs may have been built in the aftermath. But these were surely liquated in a thin market this morning, as the single-currency sold off to a 1.2770 low. In any case, the debate continues to rage about whether the peak in rates has been seen. However even the hawks must concede that inflationary readings in the next few months will be the product of mechanisms set in motion quarters ago. To react with hikes whose impact will only be felt many quarters ahead would expose this decision as the wrong one. The prospect of higher rate must surely cease to be positive actor for the dollar.

The risk-limit to our bullish scenario was also violated overnight (apologies). A renewed rally would now run into offers at 1.2845, a level where leftover longs from yesterday may remain. To the downside, weakness below 1.2770 will put additional pressure on the euro. But due to the appearance of better demand now at 1.2685, this may be difficult to exploit.


USD JPY (115.40)
The immediate decline that followed the Fed decision seemed merely to have served as a springboard for higher prices. Overnight, the dollar scrambled to a 115.75 peak and, in so doing, overtook our bullish trigger point. Therefore, we currently target gains to 118.30, with a single intermediate point visible at 116.20. However, to maintain this dynamism, the USD cannot tolerate any further sizeable corrections. For this reason, we set the downside risk-limit as tight as possible at 115.10.

EUR JPY (147.90)
We continue to expect additional near-term gains for the cross to 148.50/60 (fractionally adjusted). A move beyond this hurdle would even permit an upward acceleration (149.90) to what has so far been a very sluggish trend resumption. To the downside, the first support at 146.90/00, would offer a dipbuying opportunity (tight risk-limit). The bearish trigger stands at 146.00.

GBP USD (1.9040)
The post-Fed rally hoisted Cable to yet another new high at 1.1935 overnight. This means that the correction, when it came, barely brought the price back below $1.90. Sterling sceptics will still be struggling here, so we continue to reckon with good support from would-be dip buyers at slightly lower levels. Whilst it holds above 1.8910, a near-term bullish potential to 1.9340 will remain. But this support must also be treated as critical, as a violation would announce corrections that could drag the Pound to as low as 1.8605.

AUD USD (0.7585)
This morning’s dip – right to the very limits of the AUD’s stable territory – gives us chance to bet on a bullish strategy with limited risk. For a target at 0.7710, we can already set the downside limit of a new bullish scenario at 0.7650. The first supply point comes in at 0.7620.