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US Dollar Research Report

Published: Thursday 27 August 2015

US Dollar Research Report

Sterling Dollar GBPUSD FX Technical Analysis


The Sterling dollar exchange rate has been in a narrow range of 1.5400 to 1.5800 throughout August. The exchange rate spent 4 weeks grinding higher only to lose all of its gains within 48 hours. I guess that tells you all you need to know about how the market is positioned. At the beginning of the month it appeared that an interest rate rise form the Bank of England (BOE) was imminent.  Ahead of Super Thursday all the rhetoric was pointing towards 2 or maybe 3 members of the MPC voting for a rise in interest rates as the economic outlook improved with inflation expected to rise significantly. The reality was somewhat different as the MPC voted 8-1 to leave rates at 0.5% with Ian MacCafferty the only dissenter. Governor Carney stated that the outlook is consistent with higher interest rates but only in due course and it will be data dependant. Reaction on the day was negative with the Pound falling by over a cent versus the dollar however the market still believed that the timing of a hike would be around the turn of the year.

Market turmoil over the last week have caused traders to pare back expectations of an interest rate rise.. The stock market bubble popped in early June and the fall turned into a rout as  the stock market dived by 8.5% on what is now being called black Monday. There are fears that the Chinese slowdown could evolve into a full blown global recession. The crash in the Chinese stock market is concerning for investors as China and particularly countries and businesses that export to China. Risk aversion hit the market and traders are now not expecting rates to rise in the UK until at least the middle of 2016.

Monetary policy stances have been driving the FX markets for most of the year and unless the Chinese situation develops into a global crisis I expect that the market will return to that theme in the medium term. Therefore volatility around data releases will become the norm as traders attempt to second guess when policy makers will be tempted to pull the trigger. Therefore next weeks non-farm payrolls wll be very closely scrutinised as will the Purchasing managers indices from the UK.

September 17th is the date for the next Federal reserve meeting and there is still a significant minority that believe that the Fed will may decide that the time is right to move away from the current emergency levels of interest rates. With inflation below target , falling commodity prices and a faltering China I think it would be unlikely but expect a lot of chatter leading into the meeting.

For USD Buyers

The rate has been rebounding from the uptrend line since the middle of April and there is decent resistance around 1.5800 currently. For now I would not suggest targeting much higher than 1.5600 which is the 23.8% fibonacci level from the April low (1.4568) to the June High ( 1.5927).  The price is approaching oversold levels so I would expect some consolidation around here , a break of 1.5250 ( 50% Fibonacci) would be concerning

For USD Sellers

The trend is now on your side , however it would not be a surprise to see the rate hover around here in the short term. If you have a near term requirement then it would make sense to cover a portion now. Alternatively if you have more time to play with you can target the June low 1.5250.