September 17, 2020
- Bank of England reboots negative interest rate fears.
- Fed upgrades GDP forecasts, leaves rates unchanged
- US dollar opens higher.
FX Ranges at a Glance
Source: IFXA Ltd/RP
FX Recap and Outlook The Bank of England left interest rates at 0.1%, and policy unchanged. Theygot a ”thumbs-down” from GBPUSD traders after policymakers said they were briefed on how to implement negative interest rates. GBPUSD had recovered from an overnight low of 1.2903 and was sitting at 1.2980 prior to the BoE. In plummeted to 1.2867 immediately afterwards. Traders were already worried about the prospect for a “no-deal” Brexit, and just talk about negative interest rates was more bad news.
The FOMC meeting fall-out set the tone for Asia and Europe. Asia stock markets closed with losses, and the major European bourses are deep in the red, but off their worst levels. S&P futures are down 1.12% (6:30 am ET) pointing to an ugly day on Wall Street.
The FOMC statement warned, “The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” That statement appears to be weighing on equity markets which are ignoring the Fed’s upgraded GDP, unemployment, and inflation forecasts.
And rightly so. The Fed forecasting track record is abysmal. Now they want you to believe that because they tweaked policy to Average Inflation Targeting around 2.0%, the US economy will rebound so strongly they will have to boost US interest rates to 2.5%, sometime after 2023. Fake News!
EURUSD bulls took the Fed news badly. The market was exceptionally long EURUSD, and the break of support at 1.1770 unleashed a wave of stop-loss selling that took prices to 1.1739. Prices rebounded and opened in NY at 1.1800. Eurozone August CPI was -0.2%, which was expected but didn’t help sentiment. The intraday EURUSD technicals are bearish below 1.1810 and looking for a test of July support at 1.1700.
USDJPY crushed support at 105.00 and plunged to 104.69 in a sell-off fueled by equity market weakness and in part because of the Feds uncertain outlook due to the coronavirus. The Bank of Japan left its monetary policy unchanged but noted its economy had started to pick up.
AUDUSD had a choppy session in a 0.7256-0.7310 range. It hit the bottom post-Fed, then touched the top after a blowout jobs report. Australia added 111,000 jobs compared to the consensus forecast for a loss of 35,000. Prices retreated to the middle of the range in NY as traders focused on broad US dollar sentiment. NZDUSD ignored the 12.2% drop in Q2 as it was expected.
USDCAD rallied due to broad US dollar strength, but the rally failed to penetrate downtrend resistance at 1.3250. Prices have since retreated, but US dollar moves vs the majors, particularly EURUSD, determine direction.
US weekly jobless claims dropped to 860,000 from 893,000 last week. Philadelphia Fed Manufacturing Index was 15%, exactly as forecast.
USDCAD Technicals: The intraday technicals are bullish above 1.3150, looking for a break above 1.3250 to extend gains to 1.3290 and then 1.3360. A break below 1.3150 targets 1.3100. For today, USDCAD support is at 1.3180 and 1.3140. Resistance is at 1.3230 and 1.3260. Today’s Range 1.3170-1.3240
Chart: USDCAD daily
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank