Yesterday, the United States Federal Reserve lowered its interest rate for the third consecutive time this year. The current interest rate stands at 1.75%.
The rate cut as well as the hawkish statement that followed was widely expected, but after a short rally, the USD dropped against major currency pairs. On a 4H TF, the US Dollar Index spiked up to 98 and then dropped down to the support trend line up – in the vicinity of 97.25.
With further easing off the table in the near term the US Dollar should have exhibited more strength. The market may be waiting for tomorrow’s releases of Nonfarm Payrolls, Unemployment and ISM Manufacturing starting from 12:30 GMT.
There is also a slightly negative tint to the Phase One Trade Deal signing that was planned for next month, at the Asia Pacific Economic Cooperation Summit in Chile. Chilean President Sebastian Pinera canceled the event on Wednesday due to social unrest in the country.
China is having a hard time committing to the purchase of $40-50 Billion worth of agriculture from the United States annually, stating that making large purchases at a time of low demand is not economical. China also wants the United States to lower more tariffs.
Both sides continue cooperation and talks but realize that a long-term trade deal will be very hard to compromise.
As a result, on a 4H TF for USD/JPY, USD spiked up to 109.286 and then dropped down. Today USD/JPY is trading even lower, first on upbeat Industrial Productions from Japan, released at better than expected 1.4% ahead of the forecasted 0.4% MoM for September and later on worse than expected U.S. Initial Jobless Claims – reported at 218K, above the forecast of 215K.
The price is now resting at the 200EMA as support in the vicinity of 108. RSI is showing us the pair is oversold.
The thing is yesterday the pair bounced from 109.286 which is very close to the 61.8% Fibo level. If the price breaks the 200EMA and trend line support to the downside, the next target will be 38.2% Fibo at 107.484 and then further down we have support around 106.960.
If we have better than expected U.S. Nonfarm payrolls and ISM Manufacturing, USD may rise. Resistance is first at the 50% Fibo level of 108.423, then 108.726, followed by 109.068 and then we watch the 61.8% Fibo closely at 109.362.