Selloff in commodity currencies were the main focus last week as WTI crude oil tumbled to settle at USD 35.62 a barrel. That represented over -10% loss for the week and hitting of a 7 year low. The weakness in oil dragged Canadian dollar down with USD/CAD surged to close at 1.3750, highest in more than a decade. Australian dollar was briefly boosted by another month of spectacular job data but ended as the second weakest major currency, next to loonie and followed by kiwi. Yen was the strongest one with the help of risk aversion. Meanwhile, Euro and Swiss Franc extended post ECB gains. Sterling and dollar were mixed.
Focus will now turn to the highly anticipated FOMC meeting on December 16. Fed is widely expected to finally lift interest rate to 0.50%. Markets are pricing in 79% chance as of Friday. The first question is whether there would be dissenter in the decision. Secondly, the tone of the statement would set markets' expectation on the pace of tightening in 2016. Overall, it's now all about whether Fed would shape the hike as a hawkish, neutral or a dovish one. That could trigger larger volatility in the greenback, in particular during this thin holiday trading period of the year.
Dollar index remained soft last week even though the decline from 100.51 halted after struggling to sustain below 55 days EMA. We maintain the view that it's bounded in the consolidation pattern from 100.39. And fall from 100.51 is possibly the third leg. That is, deeper fall is mildly in favor in near term and breakaway from 55 days EMA would send the index to 92.18/62 support zone (38.2% retracement of 78.90 to 100.39 at 92.18). This is the more likely scenario with a dovish or cautious FOMC statement. Nonetheless, a hawkish FOMC statement could send dollar index above last week's high of 98.90 and that would be an early indication of up trend resumption through 100.51 high.
Stocks were also under pressure ahead of FOMC, mainly due to weakness in commodities. S&P500's late fall on Friday completed a double top pattern. And the rebound from 1867.01 should have finished at 2116.48, ahead of 2134.71 higher. The index should now be in the third leg of the consolidation pattern from 2134.71. Deeper fall is in favor in near term back to 1867.01 support.
