‘Don’t’ fight the Fed’ that old adage is very much alive and well and is one rule that has not been impacted but COVID.
Have a look at these Federal Open Market Committee’s (FOMC) statements from Wednesday:
Just to put what has happened at the Fed this year into some perspective in the three months to June the Fed’s balance sheet expanded to 13% of US GDP, it took the Fed 3 full years during the GFC to reach the same point. The FOMC is not meshing around here and will clearly do whatever it takes to shore up any credit issues it sees.
The FX fallout of this is that the USD is starting to firm up – which suggests FX is finally coming around to the idea that the global risks are outweighing the recovery.
EUR/USD is now in the middle of its $1.12 to $1.14 but at $1.1285 its showing signs, it could slip to the bottom of this band in the near term.
USD/JPY ranged between 107.10 and 107.40 which in itself supports the idea that risk-off positions are building.
AUD/USD has been interesting as it has held ground even with the news Victoria is going back into lockdown, but what is clear is that the bears are willing to defend $0.70 with real zeal and thus see small short opportunities if the pair runs up to this resistance level to grab 40-50pip trades.
Looking to the week ahead in Australian data:
FX has never been more affected by ‘confidence’ than it is now. Confidence has come to a clear indicator for economic activity and this week the business and consumer confidence numbers form Australia are due on Tuesday and Wednesday respectively. Thursday then see what is probably the most important data point in the COVID world – the employment figures, the biggest question is unemployment getting better or worse?
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