Forex Video Briefing (7/14) – USD Consolidation Set ups Ahead of Yellen
The GBP/USD has been consolidating since the 2014-high at 1.7179. Last week, the BoE did NOT confirm a 2014 rate hike, but it is on the table. As cable consolidates, its direction after the next couple of days will likely be based on the USD, and not so much on the GBP. If Yellen removes or lowers the possibility of a rate hike to be pushed back until after mid-2015, the USD can be resilient. In this scenario, the GBP/USD might continue to consolidate in a larger scale. We saw previous consolidation periods last 1.5 months, and range about 300-350 pips. IF this is the case here, we should be looking at support around the 1.69 handle. That means, we should be looking for a clear-out of some recent support factors, before expecting traders to buy up cable again. If Janet Yellen does hint at a possible push back in the FOMC’s rate hike time-line, then the GBP/USD is likely to respect those recent support factors. The support/resistance pivot around 1.70 for example could be key. With a dovish Yellen, we should not expect GBP/USD to push below June’s rising trendline and should look to buy on a dip toward this trendline.
The AUD/USD is consolidating as well after a new 2014 high around 0.95. It is coiling, or in a triangle. i believe there is some bearish bias because of the failed bullish attempt last week that was rejected by the previous highs around 0.9440. At this point, a hold below 0.94, and a push below 0.9360 should confirm short-term bearish outlook, but the 0.9320-0.9340 area represents support. If the AUD/USD breaks below this support, the next level to monitor for support will be in the 0.92 to 0.9220 area. However, after Yellen’s 2-day session, if price starts to trade north of 0.94, and pushes back above 0.9440, we should expect a bullish continuation to challenge the 0.95 high with upside risk above that, toward 0.9756, the Oct. 2013 high.
The NZD/USD started consolidating last week after a fresh high on the year at 0.8835. The 4H chart shows a very bullish market, but if Janet Yellen is hawkish, we can see some further consolidation and possibly bearish correction. However unless Yellen makes a clear market signal that rate hike will come in the first half of the year, we should not expect USD strength to reverse the NZD/USD uptrend. We should therefore expect support above the 0.8713 support pivot. We should also anticipate the RSI reading to hold above 40. If Janet Yellen instead sounds dovish, the NZD/USD could be ready to continue its strong prevailing trend. If price moves above 0.8835, and above 0.8842 (2011 high), we should expect a push toward 0.90.