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USD lower as Fed holds fire

Arnaud Masset

Market Brief

G10 Advancers and Decliners vs USD
AUD 0.77
NZD 0.57
JPY 0.49
CAD 0.40
CHF 0.07
GBP -0.04
EUR -0.10
DKK -0.11
SEK -0.12
NOK -0.30
Global Indexes Current Level % Change
Nikkei 225 Index 18070.21 -1.96
Hang Seng Index 21904.73 0.23
Shanghai Index 3079.08 -0.23
FTSE futures 6175 -0.43
DAX futures 10188 -0.55
SMI Futures 8782 -0.91
S&P future 1976.5 -0.04
Global Indexes Current Level % Change
Gold 1128.65 -0.26
Silver 15.09 -0.38
VIX 21.14 -0.98
Crude wti 46.47 -0.92
USD Index 94.55 0

As expected, the Fed left its monetary policy unchanged and reaffirmed the current federal funds rate target range of 0% to 0.25%. The biggest surprise however, came from the tone of the statement. Market participants had already priced in this event but they were not prepared for such a dovish statement. As a result, the US dollar got immediately hammered, with the dollar index dropping 1.20% as the greenback lost ground against almost every single currency. However, commodity currencies such as the AUD, NZD and CAD were unable to hold ground as the dollar bounced back to its initial levels. US treasury yields dropped substantially amid the decision; the 10-year fell 11bps to 2.1830%, the 5-year dropped 14bps to 1.4710%, while the more sensitive 2-year sank to 0.67%, down more than 14bps.

EUR/USD is now trading above the 1.14 threshold and remains firmly set in the uptrend channel. The single currency validated a break of the 1.1368 resistance and is now heading for the following, standing at 1.1561 (high from August 26th).

In the Asian session, regional equity markets across the board are trading in positive territory ahead of closing with the exception of Japanese shares which dropped at the opening. Both the Nikkei and the broader Topix index were unable to move into territory during the session; they closed down 1.96% and 1.98%, respectively. Elsewhere in Asia, Hong Kong’s Hang Seng edged higher by 0.23% while Chinese mainland shares were trading without clear direction. The Shanghai is down -0.23% and the Shenzhen Composite edges lower by -0.06%. In Australia, the S&P/ASX 200 index is up 0.46%. AUD/USD is on the rise this morning as the Fed’s decision still weighes on the greenback. The closest resistance, implied by yesterday high and 50dma, stands around 0.7250-76, while the next one can be found around the $0.74 psychological threshold. On the downside, a support lies at 0.7138 (yesterday’s low). NZD/USD is also moving higher this morning. Yesterday’s high at 0.6446 will act as resistance, while on the downside, the low standing at 0.6312 will act as support.

In Europe, equity futures point toward a lower open despite strong gains in Asian markets. The German DAX is down 0.55%, the CAC -0.57%, the Footsie -0.43% and the SMI -0.91%. EUR/CHF is still stuck below the 1.10 threshold, while USD/CHF took a hit yesterday evening dropping 1.25%. The dollar is currently testing the strong support standing at 0.96 as sellers cannot move the price lower.

Today is a slow day for economic news. However, August inflation reports from Canada will be released this afternoon. Core CPI is expected at 2.1%y/y and headline CPI at 1.3%y/y. Despite recent correction in USD/CAD, we remain bullish on the pair as we believe that the Fed’s inaction will encourage the BoC to cut its benchmark rate before the end of the year.

 

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Today's Calendar Estimates Previous Country / GMT
SW Bloomberg Sept. Sweden Economic Survey (Table) - - SEK / 07:00
NO Bloomberg Sept. Norway Economic Survey (Table) - - NOK / 07:15
SA Bloomberg Sept. South Africa Economic Survey - - ZAR / 07:30
EC Jul ECB Current Account SA - 25.4B EUR / 08:00
EC Jul Current Account NSA - 31.1B EUR / 08:00
BZ sept..15 FIPE CPI - Weekly 0.44% 0.50% BRL / 08:00
IT Jul Current Account Balance - 3528M EUR / 08:30
EC ECB's Coeure Speaks in Paris - - EUR / 10:30
UK Bank of England Publishes Quarterly Bulletin - - GBP / 11:00
UK BOE's Andy Haldane Speaks in Portadown, Northern Ireland - - GBP / 11:05
TU TCMB Turkey Survey of Expectations - - TRY / 11:30
CA Aug CPI NSA MoM 0.00% 0.10% CAD / 12:30
CA Aug CPI YoY 1.30% 1.30% CAD / 12:30
CA Aug Consumer Price Index 127.3 127.3 CAD / 12:30
CA Aug CPI Core MoM 0.20% 0.00% CAD / 12:30
CA Aug CPI Core YoY 2.10% 2.40% CAD / 12:30
CA Aug CPI SA MoM - 0.20% CAD / 12:30
CA Aug CPI Core SA MoM - 0.20% CAD / 12:30
BZ Sep CNI Industrial Confidence - 37.1 BRL / 14:00
US Aug Leading Index 0.20% -0.20% USD / 14:00
US 2Q Household Change in Net Worth - $1629B USD / 16:00
IT Italy Cabinet Meets To Discuss Draft Budget Plan For 2016 - - EUR / 16:00
BZ Aug Formal Job Creation Total -71700 -157905 BRL / 22:00
BZ Aug Tax Collections 95000M 104868M BRL / 22:00
Currency Tech
EURUSD
R 2: 1.1714
R 1: 1.1561
CURRENT: 1.1417
S 1: 1.1017
S 2: 1.0809

GBPUSD
R 2: 1.5819
R 1: 1.5628
CURRENT: 1.5579
S 1: 1.5165
S 2: 1.5089

USDJPY
R 2: 125.86
R 1: 121.75
CURRENT: 119.46
S 1: 118.61
S 2: 116.18

USDCHF
R 2: 1.0240
R 1: 0.9903
CURRENT: 0.9592
S 1: 0.9513
S 2: 0.9259
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