This might be a very nice chart to look at in connection with the “my 2 Cent” I wrote today and it possible just sums it all up, in terms of the binary event we have with the FED meeting on Wednesday night.
USDZAR has been testing the 2021 down trend channel in the last many hours… clearly a tad nervous about the risk of a hawkish FED… on the flip side, we also know that the FED might most likely stay put and we might NOT get any hawkish headlines…. so USDZAR could NOT be at a better level for the meeting (I hope we stay here)…..
A hawkish outcome means, we break the channel and probably head higher towards 14.25, possibly higher, depends on how hawkish the meeting would be…. EM is clearly nervous about that risk.
We also know, a dovish meeting would invite the Carry frenzy for the dull summer months, so a Dovish meeting would see us approach the 2021 lows at 13.4150 and possibly break with the 13.25 level the last line of defence.. the lows from early 2019… and below there… not really much … the lows early 2018 was at 11.50 just as an additional reference point. Not saying we go there BUT just so you know how big this 13.25-45 area would be in case we crack it post a dovish FED.
This now bares the question, should we even bother to take a view on the FED (I do in G10 BUT would NOT in EM)…. in EM I will react post meeting… as harder to turn positions in case you go into the meeting with the wrong position.
we WATCH 13.35-40 area in case of a dovish FED, we WATCH 13.80-85 for the 2021 down trend and 14.43 for the large down trend from 2020