As the talking heads of the FED continue to posture and strut on the world stage, driving markets to distraction and traders to tear their hair out in despair, all the signs are now clearly pointing to a hold decision, and a common sense appraisal of the fundamental data will prevail. And one of these ‘hold’ signs is the Fed Funds Rate futures which is now signalling a probability of 15% for a rise and well below the levels of the last few weeks. So much for four rate increases in 2016, as the FED struggle to delivery just one.
Moving to the daily chart for the dollar index, the congestion phase that has been building for some time continues to remain the over arching technical view, with solid resistance in place overhead in the 12,020 area, coupled with a platform of support in below in the 11,860 region. The three bar morning star reversal candle combination of late August was a strong portent, with the index subsequently falling strongly on the wide spread down candle, and this support region duly coming into effect. This area is likely to be tested once again next week should the FED fail to deliver and increase (as expected), with a consequent reaction in equities, and any move below 11,840 then opening the way to a deeper and more sustained move back to test the 11,720 of early summer. In the meantime the dollar index is likely to continue trading in this range as the market awaits the ‘announcement of the year’. Whilst the markets will react and breathe a sigh of relief once over, traders will be grateful for some respite from the constant and relentless stream of opinion from Fed members.
By Anna Coulling
Charts from Quantum Trading Dollar Index