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Trading plan for 20/09/2017:
The forex market volatility is currently very limited as market participants await FOMC statement tonight. The USD is slightly weaker during Asian trade, however, it looks like cosmetic alignment before the evening events. The EUR/USD pair barely swings above 1.20, and USD/JPY drops below 111.50 after two unsuccessful attempts to break out above 111.80. The stock market also maintains yesterday's range and Crude Oil continues to stand in place. Gold takes advantage of halting the USD uptrend and managed to rebound from $1,305 level. Now it is at $1,313, but the future direction will be heavily dependent on the FOMC decision on the US debt market and the Dollar.
On Wednesday 20th of September, the event calendar will get busy with important news release during the late US session, when the FOMC announces its interest rate decision, statement and economic projections. During the London session, the data to be released are German PPI Index and Retail Sales With Auto Fuel from the UK.
US Dollar Index analysis for 20/09/2017:
The FOMC interest rate decision, statement and economic projection are scheduled for release at 06:00 pm GMT. The FOMC press conference starts at 08:30 pm GMT. Market participants do not expect any interest rate hike from 1.25% level this month, as the majority of global investors anticipate a possible rate hike in December only. The theme of the September FOMC meeting is to begin the process of reducing the balance sheet total. When in 2014 the Fed closed the third round of quantitative easing (QE3), its balance swelled to about 4.5 trillion Dollars. The Fed reinvested the funds from the mature debt instruments, so its balance did not shrink. But now the Fed wants to change that and this week the regulator should present a decision to start reducing probably from next month. However, the Fed has started to prepare investors for a reduction of the balance sheet several months ago, and now the actual launch of the program will not have a significant impact on the market. It will be more important how the members of the committee see the prospects of the interest rate path and how the distribution of forecasts for individual members will look - so-called dot plot. There is currently widespread disagreement between market expectations and recent FOMC forecasts. In June, the median expectations of the committee members pointed to one more hike by the end of 2017 and another three in 2018. Meanwhile, the market is currently discounting a little over 50% chance for a hike in December 2017, and by the end of 2018 - a total of one and a half increases. The reason behind this point of view is a broader view of decision-makers on the economic situation. Fuel for market skepticism has been a disappointment in the inflation trend in recent months - five inflation readings up to the August were way below market expectations, only the September reading was close to 1.9% ( Fed's projected target is 2.0% by the end of the year). On the other hand, the other sectors of the US economy are in favor of the monetary policy normalization. The second quarter brought GDP growth of 3% with a strong attitude of private consumption and investment growth. The current quarter will certainly bring about a slowdown due to damage caused by hurricanes, but everything will be rebuilt in successive periods (repair work). The labor market situation is in line with Fed expectations, and the slowdown of employment is a natural phenomenon at this phase of the cycle. And last, but not least, there are positive signals from Washington regarding the Trump administration fiscal reform that might find support in Congress's fiscal plans.
The permanent outcome of the FOMC meeting might be the fact that, despite all the negative macroeconomic factors on which the market has been focusing, the Fed has not changed its attitude since the June meeting and wants to continue normalizing its monetary policy at a predetermined pace.
Let's now take a look at the US Dollar Index technical picture on the H4 time frame. The market volatility is limited and the is price is staying in a narrow range between the levels of 91.62 - 92.10. Only a sustained breakout above the golden trend line might trigger some bigger bounce in the index and maybe even a reversal. Nevertheless, the key level for bulls to take the control over this market is the zone between 93.35 - 93.65 levels. Otherwise, the downtrend will continue.
Market Snapshot: AUD/USD at the resistance zone
The price of AUD/USD tests resistance at 0.8050 (local highs from 12-13 September). It is worth to wait for the course to continue. A clear breakout above this level will open the way to the highs of 8 September at around 0.8125. In case of a rebound, support is the 38%Fibo at 0.8005 and 61.8%Fibo at 0.7980.
Market Snapshot: Crude Oil consolidating gains
The price of Crude Oil rebounded from the lower consolidation band at $49.40. So far there is no dominance of any of the market sides (supply/demand), but the solution may come when the Inventory Data will be published. The short-term target for bulls will be the upper limit of consolidation at $50.40. In case of a breakout, the next technical resistance is seen at $51.75 (external Fibo 127.2%), while technical support is seen at the level of $ 49.17.
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