Fed’s meeting does little to change the collective FX market psychology and the weak USD mantra remains firmly in place. Economists at TD Securities prefer to focus on pairs that have lagged the weak USD move, therefore, they remain focused on USD/JPY downside.
“The inclusion of a virus-dependent outlook is notable. This introduces an element of uncertainty around the USD, that is not kind to the reserve currency given that COVID cases are ravaging across the US. If anything, today’s Fed meeting will only reinforce that weak USD outlook mantra that has taken hold of market psychology. We prefer to focus this in pairs where this is less advanced. Here, USD/JPY looks poised to slide further.”
“The break of the 106 pivot is significant and only adds to the risk/reward appeal of adding to longs. The recent push through multi-year horizontal support in USD/CHF may add to further downside pressure in USD/JPY. There, 104.50/60 will be key support ahead of the more significant 104 psychological support.”