Forex Forecast: AUD/USD, EUR/USD

AUD/USD dips after RBA minutes

(Kenny Fisher – MarketPulse)

The Australian dollar is in negative territory today. AUD/USD is trading at 0.6706, down 0.30% on the day.

RBA says rates to increase

The RBA minutes of the September 6th meeting didn’t shed any new light on the central bank’s rate policy, and the Australian dollar’s response has been muted. The minutes reiterated the message that the markets have already heard from Governor Lowe – additional rate hikes are coming, but the size of the hikes will depend on inflation and growth.

The minutes noted that rates are approaching “normal settings”. At the meeting, members argued over whether to raise rates by 25bp or 50bp – in the end, the Bank went for the latter option, bringing the cash rate to 2.35%. With no inflation or employment data prior to the October meeting, the RBA may still be up in the air with regard to the size of the rate hike right up to decision time. This will make for an interesting meeting which could trigger volatility from the Australian dollar.

There are arguments to be made on both sides. Inflation rose to 6.1% in the second quarter, and as the RBA’s number one priority, Lowe may want to keep the pedal on the floor until there are clear signs that inflation is moving lower. On the other hand, inflation expectations have slowed over three straight months, a possible indication that inflation may have peaked or will do so shortly. Lowe would very much like to guide the economy to a soft landing, which would be facilitated by a modest 0.25% hike.

The Federal Reserve meets on Wednesday, with the markets expecting a 0.75% hike. There is about a 20% chance of a massive full-point hike. The markets will be listening carefully to the Fed’s guidance – if it is hawkish, the US dollar should respond with broad gains.

AUD/USD technical

AUD/USD has support at 0.6623 and 0.6523.
There is resistance at 0.6769 and 0.6869.

EUR/USD Forecast: Euro bulls hesitate ahead of Fed decision

(Eren Sengezer – FXStreet)

– EUR/USD has lost its bullish momentum early Tuesday.

– The pair could have a tough time finding direction ahead of Fed’s policy announcements.

– The cautious market mood is helping the greenback hold its ground.

EUR/USD has reversed its direction and retreated toward parity in the European session on Tuesday after having touched a fresh weekly high of 1.0051 earlier in the day. The near-term technical outlook doesn’t provide a directional clue and the pair could go into a consolidation phase ahead of the Federal Reserve’s policy announcements on Wednesday.

Wall Street Journal author Nick Timiraos, who leaked the 75 basis points (bps) Fed rate hike a couple of days before the official announcement in July, published an article on Monday. Timiraos said that the Fed was ready to accept recession as the price of battling inflation but refrained from hinting at a 100 bps rate increase following the September policy meeting. The greenback lost some interest after this report and allowed EUR/USD to end the day above parity.

Nevertheless, the cautious market mood is helping the dollar hold its ground early Tuesday with the US Dollar Index rising 0.2% on the day at 109.80. US stock index futures were last seen losing between 0.2% and 0.35%, suggesting that Wall Street’s main indexes could find it hard to build on Monday’s recovery gains.

Later in the session, August Housing Starts and Building Permits data will be featured in the US economic docket. It wouldn’t be surprising to see negative readings as the housing market continues to suffer from rising interest rates. Nevertheless, investors are likely to remain on the sidelines and keep an eye on technical levels for short-term trading opportunities.

EUR/USD Technical Analysis

EUR/USD trades within a touching distance of 1.0000 ((psychological level, 100-period SMA, Fibonacci 61.8% retracement of the latest downtrend). A four-hour close below that level could open the door for an extended slide toward 0.9950 (psychological level) ahead of 0.9900 (psychological level).

On the upside, 1.0030/40 (Fibonacci 50% retracement of the latest uptrend, 50-period SMA) forms key resistance before 1.0060/70 (200-period SMA, Fibonacci 38.2% retracement) and 1.0100 (psychological level).

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