Wednesday's FOMC outing showed the Powell Fed to be less model-driven than its predecessors, but the lack of any language confirming four 2018 rate hikes sent the dollar plunging lower.
Article / 24 August 2016 at 15:00 GMT

FX Board: More mischief ahead of Yellen speech Friday

Head of FX Strategy / Saxo Bank
By John J Hardy

Key developments in FX today

  • Euro was pounded for rather heavy losses on the day, particularly against a resurgent sterling, as crowded sterling shorts were squeezed in EURGBP and to a lesser degree in GBPUSD. EURUSD was down testing the top of the pivotal 1.1200/50 area.

  • Elsewhere, the Scandies and AUD and NZD also picked up a solid bid against the hapless euro after weakness overnight in AUD and NZD was erased, but we're still in limbo for AUDUSD and NZDUSD until at least the other side of Friday's Fed speech.

  • Gold has broken an important local support level above $1,330/oz and the next levels lower come in from $1,300-1,311/oz. Silver has led the charge lower in precious metals and the key support looks like the $18.00-50/oz zone next.

EURGBP follow through

EURGBP followed through lower after contending with the important 0.8600 area this morning and took that level out handily.

The next level of interest is perhaps the 61.8% Fibo down around 0.8430, which is the last gasp support ahead of the 0.8250 area post-Brexit vote bottom.  0.8500, meanwhile, may prove a psychological sticking point.

Will 0.8500 protect EURGBP from further slippage?
Source: SaxoTraderGO
EURUSD dipper

EURUSD dipped sharply on the day and is staring down the key 1.1250/00 support zone - will anything break ahead of janet Yellen's speech at Jackson Hole?

It is disappointing for the bulls that we couldn't even run up to test the 1.1400/25 resistance before this latest selloff, another sign of the lack of commitment to directional moves from an indecisive market.

EURUSD cast adrift by an indecisive market
 Source: SaxoTraderGO

AUDUSD eyes 0.7600

AUDUSD once again had a look at the 0.7600 area support today before shying away - it appears traders are afraid to make any directional commitment until we get key event risks out of the way.

No commitment until event risk out of the way
 Source: SaxoTraderGO

XAUUSD support yields

Spot gold finally took out the support it was staring down from quite some time around $1,330/oz, with some room left toward $1,300-11/oz before the selloff takes on bigger bearish implications.

Spot gold staring down the barrel
 Source: SaxoTraderGO

— Edited by Martin O'Rourke

John J Hardy is head of forex strategy at Saxo Bank
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FX Board for Wednesday, August 24, 2016

Rofhiwa Thomoli Rofhiwa Thomoli
John, what will be the impacton EUR. What can we expect afterwards?
AlexF AlexF
Please your comments on USDJPY on today's move up thanks
John J Hardy John J Hardy
EURUSD downside pivot is the 1.1200/50 zone - and we have to wait for Yellen speech before knowing which way this will go - EURUSD has been a long walk in the desert for momentum traders for 18 months now.
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