Dollar Picks Up as Cautious Traders Await Federal Reserve Meet

  • Currencies in tight ranges; more barriers for euro at $1.17
  • Morgan Stanley long euro vs Australian dollar on positioning

The Bloomberg Dollar Spot Index rebounded from the lowest since May 2016 ahead of the Federal Reserve starting its policy meeting in Washington.

The gauge’s relative strength index signaled it was oversold, with the U.S. currency gaining against the yen and Swiss franc. Traders are still taking a cautious approach as positioning looks stretched with hedge funds and other large speculators the most bearish on the dollar in more than four years, according to CFTC data. The euro gained as much as 0.2 percent to $1.1669 as European Central Bank Executive Board member Yves Mersch sounded bullish on the recovery and inflation in the euro area.

“We suspect markets will continue to trade tactically going into Wednesday’s FOMC decision and until there is some clarity on whether the Senate has made any progress on the healthcare bill," said Manuel Oliveri, a London-based strategist at Credit Agricole SA.  

For the euro, there is minor resistance at Monday’s high of $1.1684, and barriers at $1.17, said a London-based trader, who asked not to be identified because they are not allowed to speak publicly. Beyond that the common currency could test $1.1736, the 38.2 percent Fibonacci retracement of its 2014-2017 fall.

  • The major currencies stayed within tight ranges ahead of the Fed’s policy decision on Wednesday
  • For Commerzbank AG, “neither euro nor U.S. dollar investors want to commit themselves either way ahead of tomorrow’s FOMC.” While the Fed is expected to keep rates on hold, traders are looking for comments that it could make on its balance-sheet reduction plan
  • AUD/USD little changed at 0.7924 ahead of 2Q CPI data on Wednesday
    • According to Morgan Stanley’s indicators, fast money names are now long the Australian dollar, which is among the best performers this year against the U.S. dollar, gaining around 10 percent. “This means to us that any surprise in economic data or central bank commentary could cause these AUD longs to unwind,” strategists including Hans Redeker wrote in a note to clients. “We prefer to play for this scenario via long euro against Australian dollar,” they added
  • USD/JPY climbs as much as 0.3% to 111.43 versus 110.83/111.43 range
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