The FED's dovish interest rate meeting last Wednesday ultimately did not hurt the dollar. The post-FED dip was completely reversed the following day. The persistently high demand for the dollar is actually absurd in view of the rapidly rising national debt and the prospect of interest rate cuts. So we are left with three possible explanations:
Firstly, the FX market does not believe that the Fed will cut interest rates any time soon. Secondly, the market is already anticipating that the other central banks will follow suit. The Swiss National Bank (SNB) has already delivered a rate cut last week (1.50% vs. 1.75% previous) and the Riksbank has today announced a rate cut for the next meeting. The same can be assumed for the other G10 central banks. And of course it can also be a mix of the first two explanations. Another and thus third possibility is that I am missing something crucial. Feel free to let me know your opinion in the comments.
From a technical perspective, the Dollar Index (=DXY) is supported above the 104.00 level. A daily close below 103.90 would be bearish for the dollar in the short term. Above the 104.50 level, on the other hand, the index is very likely to approach the 105 treshold. Overall, the market has recently been quite choppy within narrow ranges. This refers in particular to the dollar crosses with the euro, the pound and the aussie, which are currently making swing trades almost impossible. In this respect, I recommend closely monitoring directional trades or switching to FX options.
EURUSD -- 1.0825
There is nothing to see here. The 1.0724/1.0987 trading range is still active and it will take some special news for the currency pair to break new ground this year. Until then, it is best to stay away from the pair or try to earn a little more than the premium paid with a short-term FX option (hedged).
GBPUSD -- 1.2621
The currency pair is trading within an narrow annual range (1.2500/1.2800) either. As we saw at the beginning of March, false breakouts are always possible, but on the downside at least the 200-day line (1.2591) is another point of reference. With each test, however, the probability that this important average line will not hold increases. Short attempts, on the other hand, should be stopped above the mid Bollinger band (1.2718) for the time being.
USDJPY -- 151.21
The chart below shows a longer period with weekly candles. You can clearly see an ascending triangle pattern, which is usually resolved upwards, but not always. This morning the currency pair marked a new multi-year high (151.97) but rejected the 152.00 treshold again. The big question now, of course, is whether this heralds the end of the rally or not. I certainly do not know the answer, but I now know exactly where shorts should be stopped.
USDCHF -- 0.9065
In the last Morning Call I wrote that I would watch out for signs of a possible trend reversal towards 0.9000/0.9100. At that time, however, I was not yet aware of the unexpected interest rate cut by the SNB. Short-term dips cannot be ruled out, but the trend could continue for the time being despite overbought levels. The RSI was even almost 10 points higher in September 2023. Dollar short attempts in the direction of 0.9100 should be closely monitored in any case.
Good luck,
Sebbo