FOMC taper talk lifts US dollar

The US dollar rises on FOMC tapering talk

The US Dollar had a choppy session overnight but with the FOMC clearly signalling that a year-end start to tapering is imminent, and with more members joining the 2022 hiking club on the dot plot, the US dollar finished the night higher. It would appear, for now, that the US Dollar is the favoured method of expressing the Fed taper, and not equities or bonds. The dollar index finished 0.26% higher at 93.44, easing to 93.37 in Asia as profit-taking hit the market.

Among the majors, euro and sterling look the most intriguing. EUR/USD fell to 1.690 overnight before rising to 1.1705 in Asia. GBP/USD fell to 1.3617 overnight before recovering slightly to 1.3638 in Asia.  Failure of 1.1680 on EUR/USD will signal a test of 1.1600. Failure if 1.1600 signals a larger move targeting 1.1200 to 1.1300 in the weeks ahead. GBP/USD appears to be tracing out a head and shoulders formation. Failure of around 1.3600 signals a 400 point move lower to 1.3200.

USD/JPY rose 0.50% to 109.80 overnight after the FOMC decision. Liquidity is much-diminished today with Japan away but any slight move higher in US yields should see 110.00 tested and a break of the recent 109.00 to 110.00 range. However, I believe that USD/JPY needs to break through the 110.50/111.00 range to signal a long-awaited directional move is finally occurring. That will likely require US yields to move quite a bit higher, certainly not a guaranteed outcome.

AUD/USD and NZD/USD have both eased back to their weekly lows today and look vulnerable to any negative headlines coming out of China. Asian currencies, for their part, have given ground only modestly overnight post-FOMC. Another neutral USD/CNY fixing from China is aiding stability in the region and it appears that regional currencies are being more responsive to positive or negative developments in Asia, rather than the US, for now.

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