Dollar Generally Lower Ahead Of FOMC's Tapering Lite

Different themes took turns to drive the markets last week. Receding risk of strike against Syria and optimism on China's economy drove equities up and took commodity currencies higher. The Kiwi was the strongest one which was benefited from a hawkish RBNZ statement. However, the Aussie lost much steam as weak employment data raised the odds of another RBA rate cut. The Canadian dollar also lost some momentum towards the end of the week. Sterling was the strongest one as unexpected dip in unemployment rate affirmed the positive outlook in the UK economy and raised the chance that BoE would tighten earlier than expected. Yen was sold off in the early part of the week after Japan's win as 2020 Olympic host but stabilized quickly. Euro was mixed while dollar was pressured on mixed economic data.

Markets' focus should now turn back to a unified theme of the pivotal FOMC meeting this week. Recent economic data from US is not too positive, in particular the disappointing August NFP report. Nonetheless, markets still generally expect the Fed to start scaling back the asset purchases this week.The Fed might only lower the $85 billion a month asset purchase program by a small step of $10 billion, and it's likely that only treasury purchases are cut. A few developments ahead of FOMC worth to be noted. Firstly, 10-year yield have been consolidating for nearly two weeks after hitting 2.984%. We might see 10 year yield breakout out from range and have a go at 3% level before finally making a top. Secondly, gold's sharp selloff towards the end of last week would likely continue through 1300 level, but some support should be seen around 1200 to contain downside. Third, the DOW's rebound continued last week, and would likely head further north towards 15658 high. But, strong resistance should be seen from there to bring reversal to extend the medium term consolidation. The above developments could help the greenback have a brief rebound this week. But, it's no likely that dollar's momentum could sustain.

Elsewhere, the markets were indeed rather mixed. The GBP/JPY took out recent high to resume the larger rally. But, that wasn't followed by equivalent breakout in the EUR/JPY and the USD/JPY. The selling momentum in yen is questionable. We'd still treat yen as generally being in medium term consolidation and would avoid it. While sterling's strength was also clearly seen last week's decline in EUR/GBP, momentum has been very week before Friday. And, we'd stay cautious on bottoming below the key 0.8397 support. Thus, we don't prefer to ride on Sterling's rally. The euro and Swiss franc don't have a direction for themselves. While the Aussie and Loonie just pulled back on overbought conditions and would likely consolidate for a while.

Our EUR/USD short was stopped out last week as the pair recovered. And, while the greenback might rebound, we're not too interested in this risky short term trade. The EUR/AUD and EUR/CAD didn't recover much enough to enter our short trades. Overall, we'd maintain the strategy of waiting for recovery in EUR/AUD and EUR/CAD to enter medium term shorts. We'd try to sell the EUR/AUD at 1.46 and EUR/CAD at 1.38 respectively.