Article by ForexTime

In line with expectations, the Greenback continued to weaken against its counterparts on Tuesday. Although 62 out of 64 Bloomberg economists are expecting the Fed to conclude QE as planned, the profit-taking is correlated to a realization from investors that although US economic data has improved over recent months – the chances of the Federal Reserve now turning hawkish are very slim.

While concluding QE is a vital step that the Federal Reserve are stepping towards normalizing monetary policy, investors got way too carried away when they started pricing in a US rate rise and the Fed are highly unlikely to even begin discussing a rate rise for some months. There also remains a chance that the Fed could throw an unexpected curveball by continuing QE, or announcing that QE round 4 will be implemented if US economic data begins to slowdown.

Due to the widespread USD weakness, the Eurodollar moved as high as 1.2760 on Tuesday afternoon. Traders should be aware that the appreciation is not linked to an improving EU economic sentiment, if anything the sentiment worsened further on Monday when the German IFO Survey dropped to a 22-month low. Furthermore, the IFO expressed it was not expecting any growth at all in Q4. The recent appreciation in the pair is solely linked to Dollar profit-taking and if a dovish Federal Reserve appear tomorrow, we can’t rule out a return to 1.28.

Despite no noteworthy UK economic data on Tuesday, the GBPUSD surpassed Monday’s 1.6128 resistance and moved as high as 1.6181 on Tuesday afternoon. With low economic releases this week, the Cable will continue to trade in accordance to demand for the Dollar. If this Dollar profit-taking continues, or the Federal Reserve put an end to the USD rally tomorrow – upside moves between 1.62-1.63 remain possible. Before then, the GBPUSD would need to successfully surpass resistance at 1.6220 resistance in order for the pair to consolidate around 1.62.

The Aussie benefited the most from the USD weakness, with the pair accelerating by nearly 100 pips and moving as high as 0.8880 on Tuesday. The pair is now pulling back to trade at 0.8846 at the time of writing but with no Australian economic data released until Thursday’s New Home Sales, which direction the pair trades really is dependent on the market reaction to the FOMC. If the Greenback weakness continues, the Aussie returning to 0.90 seems possible. Potential resistance for the pair can be found at 0.8880 and 0.8945.

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Article by ForexTime

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