This text is from blog famous currency strategist Joel Kruger .
WHERE IS THE EVENT RISK? – We all know the Fed is committed to monetary easing for an extended period, with policy tied to unemployment and inflation. No change is expected on policy today, and the only real outlier is the split amongst central bankers over just how long “extended” should really be. In light of the above, I wouldn’t expect a whole lot of new color at today’s meeting, although it is worth noting that the Fed has recently gone through a rotation which leaves the makeup far more on the dovish side than it had been. As of now, James Bullard is the only longstanding hawk, with Esther George the only other true voting hawk. As such, given this makeup, the risks are tilted to the dovish side, and this is how markets should be pricing the event risk.
DON’T FORGET ABOUT FRIDAY – At the same time, this also means that there is room for letdown if the message comes out less dovish than markets are looking for. Still, with Fed policy so closely tied to unemployment now, Friday’s monthly US jobs report will likely have a greater influence on price action. Any signs of improvement in the unemployment rate will be interpreted as risk bearish and USD bullish, while anything short of a disastrous number that still shows elevated unemployment with no improvement, will likely translate into additional risk buying and USD selling. While the short-term picture is quite difficult to forecast, I continue to retain an aggressively bullish US Dollar outlook, while also contending that global equity markets are seriously overvalued and poised for some major weakness ahead.
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WEEKLY LOWS ALREADY CRITICAL – As we focus on the coming sessions, I will be looking for EUR/GBP to put in a bearish reversal day, Aussie and Kiwi to once again stall out in favor of fresh weakness, the Yen to rebound a bit (USD/JPY lower), and the Euro to top out. The current weekly lows for EUR/GBP, AUD/USD, NZD/USD, USD/JPY and EUR/USD are all critical levels to watch, with most of these levels (I believe) carrying with them more medium-term implications if broken. Technically, if these levels are broken (and we see daily closes below these levels), it will signal the end to some major bullish sequences. Fundamentally, the catalyst for the break and close below these levels will likely come from the Fed, which clearly carries with it influence that extends beyond the short-term.
