Dollar stays slightly on the defensive, but the downside potential looks limited
Global investors turned more cautious ahead of the Fed decision due later today. Should the Fed refrain from emphasizing more aggressive hiking, it could be interpreted as dovish. In this scenario, the dollar will have to give up some of its recent gains as the USD bulls would be disappointed by a cautious tone by the bank. The USD index has retreated marginally from multi-year highs seen last week just below the 104.00 mark. Should the pressure intensify in the near term, the buck may challenge the 102.80 support zone, followed by the 102.30 area. In a bullish scenario, the USD index could easily overcome the 104.00 mark last seen in 2003. EURUSD has settled marginally above 1.0500 on Wednesday, clinging onto modest gains ahead of the Fed’s verdict. Should the euro rally later in the day, the prices may challenge the 20-DMA for the first time in a month.
GBPUSD failed to regain the upside momentum on Tuesday despite a weaker dollar. The pair finished just below the 1.2500 figure, unchanged on the day. The selling pressure has abated somehow, but the recovery potential remains limited, with the prices lacking the upside momentum to get back above the 1.2600 level that capped gains last week, suggesting the prices could dip towards fresh long-term lows after some hesitation. On the four-hour charts, the technical picture remains neutral, as the prices are holding around the 20-SMA while the RSI is directionless around 44. On the upside, the key immediate target arrives at 1.2570, followed by the 1.2615 zone. Both in the short- and medium term, risks for the pair remain skewed to the downside for the time being, which implies that the prices could derail the 1.2400 mark to notch fresh long-term lows in the coming days.
USDJPY keeps trading within a tight range, struggling for direction after a brief rally above 131.00 last week. The dollar is sitting around 130.00 during the European hours on Wednesday. As the pair refrained from a more pronounced bearish correction earlier, it looks like the buck could resume the ascent to retest the 131.00 barrier in the coming days, especially as the Federal Reserve is expected to deliver a hawkish rate hike while the Bank of Japan plans to keep interest rates low despite rising inflation. On the hourly timeframes, the prices fell below the 20-SMA while the RSI turned slightly lower, which implies that the pair could remain slightly on the defensive in the immediate term. In a wider picture, USDJPY stays resilient despite the overbought conditions, targeting fresh twenty-year highs around 132.00.
The Kiwi fell to mid-2020 lows earlier this week before bouncing slightly on Wednesday. The pair found support around 0.6410 to finish nearly unchanged yesterday. On Wednesday, the USD index stays under some selling pressure, pushing the New Zealand dollar marginally higher. The pair was changing hands 0.6450 during the European hours, refraining from more pronounced recovery amid the overall cautious tone in the markets. On the upside, the nearest target now arrives at 0.6475. A decisive break above this intermediate resistance would pave the way towards 0.6540. However, the path of least resistance remains to the downside as long as the prices stay below the descending 20-DMA, today at 0.6665. On the four-hour timeframes, NZDUSD keeps struggling below the descending 20-SMA while the RSI is pointing slightly lower, which implies that the pair will struggle to see a more robust bounce in the near term.