It's a great time to be a trader tomorrow as the new era of Governor Powell comes into full force and markets are expecting the first FOMC he chairs to bring about a rate hike, lifting the current one of 1.25% to 1.50%. This would be a polarising move and certainly set the tone for what many expect will be a hawkish return to the good old days of interest rates actually being strong. The last 10 years have seen record lows for interest rates across the globe and many have been wondering when we will come out of it. Well the expectation is that we will see at least three hikes this year, if not four in the coming year as the markets look set to embrace it fully. The real question will be of course how much the tax cuts will affect the US economy, and more importantly if economic growth will kick into overdrive. For me though it's a question of the USD, with the bulls being disappointed the more we talk about interest rates and if there is any hope of a USD rise in the future.
For me one of the key pairs to watch tomorrow will be of course the USDJPY which by the looks of things is already pricing in a rate rise from tomorrows FOMC. I am liking the USDJPY on the basis that right now the Japanese government is looking weak so the currency is looking a little directionless if not bearish, while the USD is looking to strength on positive economic comments from Powell tomorrow. So the upside potential for the USDJPY is looking positive from a fundamental perspective.
On the charts any push higher is likely to meet some stiff resistance around the 107 resistance band, this area has for the last few weeks stopped the bulls getting much higher and I would expected bearish pressure to continue here, unless we get some very positive economic comments. Any falls lower are likely to find stiff resistance around the 106.028 support level, which has so far managed to keep the bears gaining any further ground over the last week. The 20 day moving average is also an interesting one the way it has been moving, but I wouldn't give it to much attention with tomorrows events likely to cause volatility.
One of the key other areas to watch tomorrow will be of course the NZDUSD, which has come under renewed pressure today on the bullish USD. It's worth noting that currently it's sitting on the 200 day moving average, but further USD strength could see it crack through and drift towards support at 0.7054 on the chart. Pushing through the all important 0.70 barrier though could be a tricker task, so it's certainly a case of weight and see at this present time.