So, it looks like this week will close as a pro-USD after the unexpected hawkish stance by the Feds. In my opinion, I really think the view expressed by Yellen and other committee members despite the dissent from Kashkari charts a new path for the Green back. That should be the case because for the first half of the year, the USDX-which tracks the USD against other currencies with the Euro-the then largest trading partner with the US weighing in at 57.6%-has been on the decline. The decline is notable from the highs of 105 to the current lows of 97 where the USD bulls are picking up. Looking at fundamentals, the Feds reduced their inflation forecast for this year while next year’s target remains unchanged from March expectation. Also, as noted yesterday, they will retain their terminal Fed Fund rates at 3.0% as they hope economic activity, labor conditions and inflation will rise in the next couple of months. This positivity by the Fed was interpreted as a very bullish rate hike despite the recent down turn of events especially with inflation and Labor conditions which are the major metrics and determinants of rate hikes. All this optimism combined with balance sheet normalization spell bad news for the commodity markets and currencies- especially Gold which has so far shrunk to below $1260/ounce and on its way to $1200. This is a clear hint that the USD bulls are emerging and it is the right time to rise with the tide and sell the Rand on the following technical grounds.
Looking at the USDX weekly chart, the USD is expected to appreciate as the week close. As stated in my previous post, there is a buy signal which has formed and it is the same buy signal which is also printing in the USDZAR pair though not in the oversold stochastics, it is bouncing off from the 200 period moving average. In the daily chart, yesterday’s bullish engulfing pattern-the double bar reversal pattern-means that the up-trend is strong and should continue for the next couple of weeks and it is the right time to buy.
Trade as follows:
Stop Loss: 12.60
Take Profit: 13.95-14
Today watch out for US building permits-1.25Me from 1.228 last at the NY open. Just before this, sell the Russian Ruble as their central bank looks to slash rates from 9.25% to 8.75%. This event is 30 mins before the US building permits.
If you have a portfolio of emerging currencies, just offload them at the moment.
Have a good trading day and a nice weekend