DOLLAR INDEX FALLS AS TRADERS WAIT FOR FED STATEMENT

The dollar index fell ahead of tomorrow’s interest rate decision by the Federal Reserve. The bank is expected to raise interest rates by 25 basis points. The biggest mover in the dollar will be the forward guidance that is expected after the rate decision. Traders want to know what the Fed plans for the December meeting. A few months ago, traders were certain that the Fed will hike in December. Hopes for a hike have however reduced after cautious comments from Atlanta Fed president, Raphael Bostic. In an interview last month, he said that he is unlikely to support a move that will lead to a yield curve inversion. As a result, the dollar index has eased a bit in the past month. Today, the Conference Board will release the consumer confidence numbers, which are expected to show a decline to 132.2 from last month’s 133.4.

The Japanese Yen fell slightly against the greenback after the BOJ released minutes for the past meeting. The minutes showed that there was increasing worry from some members about the decision to allow government yields to move above or below 0.2%. The members worried that the policy would lead to higher rates. The Japanese economy is currently experiencing notable growth, with exports and fixed asset investment rising at a faster rate than expected. The unemployment rate has remained low but the BOJ’s strategy to stimulate inflation has largely been unsuccessful. In August, the closely-followed core CPI that excludes food rose at an annualized rate of 0.9% while the headline number rose by 1.3%. This is below the BOJ’s target of 2%.

The sterling rose slightly today after the Labour party said that it would support a second Brexit referendum. A statement by Keir Starmer, who serves as the party’s Brexit spokesman said that they will not support the deal Theresa May is working out with the EU. The new statement adds pressure to May who is struggling with the EU and her party. On Friday, the EU announced that it would reject the Chequers plan. Back home, some conservatives are working on a deal to replace her as prime minister.

EUR/USD

The EUR/USD pair traded within a narrow range today as traders waited for the statement from the Fed tomorrow. It is now trading at 1.1780. As expected in a range market, the current price is in line with the 14 and 28-day EMA. Unless there is any major news announcement between today and the Fed statement, the pair is likely to continue to trade within this narrow range.

GBP/USD

In July, the GBP/USD pair started a sharp decline that saw the pair trade from 1.3360. This decline ended in August when it declined to a low of 1.2600. Since then, the pair has made an impressive rally and completed the cup part of the cup and handle pattern. This month, it reached a high of 1.3300. The rally happened after signs that a Brexit deal will be made. The 28 and 14-day EMA, the Relative Vigor Index, and the On Balance Volumes indicators point to a continuation of the upward movement. This momentum will depend on the statement by the Fed tomorrow.

USD/JPY

The USD/JPY pair started a major rally in May when it reached a YTD low of 104.6. Since then, it has moved higher and yesterday, it reached a high of 113. The current price is along the upper Bollinger Band, which is an indication that there might be a minor downward trend. However, in the medium-term, the pair will likely continue moving up after testing the important 113.18 resistance level.