Dollar Outlook Nearing FOMC, USDCHF Technicals

by on December 18, 2013 4:22 pm GMT

This afternoon, the Federal Reserve will likely hold of on a taper this month as it looks for continuing momentum in the economic data. Two months of better than expected data does not mean the US economy can come of the IV drip, and it would only further confuse the market if a taper was to happen and then increase stimulus if the US becomes sluggish again. Market participants are getting anxious with the outcome of the FOMC minutes given the uncertainty.

The dollar has been up coming into today but traders are pairing back on positions. Joe Manimbo, analyst at Western Union Business Solutions, said “investors are playing it cautious and flattening out some of the negative bets on the dollar.” According to Mohamed El-Erian, CEO of Pacific Investment Management Co. (PIMCO), said “there’s about a 60 percent chance the Fed will announce a reduction in its monthly asset-purchase program today.”

However, it may be unlikely that Chairman Ben Bernanke will taper ahead of Janet Yellen taking the reigns, who is very keen on monetary easing.

USDCHF, a proxy for the US dollar, is currently range bound on the intraday 4H chart. This  correlates to the market’s indecision, and the USDCHF has a lot of resistance up above.

Dynamic moving average resistance is layered in the intraday chart. Price action is currently been held by the 20 EMA, while the 50 EMA and price action resistance meet at .8900. On a knee-jerk reaction to the upside, the USDCHF can hit the 72 EMA at .8924 and potentially as high at .8975.

4H Chart of USDCHF

4H Chart of USDCHF

However, the longer-dated daily chart is poised to send price action lower. There is historical support at .8831, and price action have respected that level, so far. A break below will signal bearishness and send price action down to .8775.

A taper or no taper may provide volatility for trading, but what Bernanke will say after the decision will set the course near term. A downside projection of .8650 is still possible, technically. The daily’s first sign of resistance coincides with the 4H chart at .8890-.8900.

1D CHart of USDCHF (3Y)

1D CHart of USDCHF (3Y)