Traders continue to position for hawkish FOMC statement

Dollar strength this week seems suggesting that traders are positioning themselves for a hawkish fed statement on Wednesday. The situation for Fed is clear, growth is slowing down as will also be indicated by slowing GDP later this Friday. Housing market was not as bad as expected before and is giving sign of bottoming. Meanwhile, headline inflation continues to cool on falling energy prices but core inflation remains high. It is indeed likely that Fed will maintain a tightening bias in this meeting and emphasize the concern on persistently high core inflation. But we’re skeptical on whether there will be decisive buying to push dollar higher after that and are concerned about sell-on-news selling.

Japan’s Finance Minister Koji Omi said today that “we will keep closely monitoring currency moves and take appropriate actions if needed.,” as “It is important for currency movements to reflect economic fundamentals.” But impact of yen was limited as it continues to weaken across the board.

To be released in European session, Eurozone current account deficit is expected to narrow to 4b in Aug while industrial new orders is expected to increase by 0.8% mom, 10.1% yoy. UK CBI industrial trend survey is expected to stay at minus 5 in Oct.


Daily Pivots: (S1) 1.2596; (P) 1.2641; (R1) 1.2709; More.

USD/CHF’s fall from 1.2768 has completed at 1.2548 and subsequent rebound has pushed USD/CHF to as high as 1.2690 so far. The three wave structure of the retreat from 1.2768 is suggesting that it’s merely a correction and further rally is still in favor to come.

At this point, further rally is still in favor to follow and break of 1.2697 minor resistance will bring retest of 1.2768 high. On the downside, below 1.2601 will indicate the rebound form 1.2548 has likely completed and retest of 1.2548 low should follow. Below 1.2548 will indicate fall from 1.2768 has resumed for 1.2404 cluster support (61.8% retracement of 1.2182 to 1.2768 at 1.2406).

In the bigger picture, USD/CHF’s medium term rebound from 1.1919 extended to as high as 1.2768, meeting upside target of 61.8% retracement of 1.3283 to 1.1919 at 1.2762 already. With bearish divergence in 4 hours MACD and RSI as background, the whole rise from 1.2291 has possibly completed at 1.2768 already. Hence, sustained trading above 1.2768 high is needed to indicate such rally has resumed for next fibo resistance of 78.6% retracement 1.3283 to 1.1919 at 1.2991. Otherwise, risk of another fall remains. On the downside, break of 1.2404 cluster support will bring retest of medium term rising channel (now at 1.2356).

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