Post FOMC Outlook: Dollar Extends Strong Rebound

Dollar extends earlier rebound after FOMC left rates unchanged released a somewhat more optimistic statement. Stocks turned red with DOW dipping through yesterday's low and reached as low as 8259 so far. Treasury yield jumped while crude oil and gold pared earlier gains. The statement noted that pace of economic contraction is slowing and conditions in financial markets have generally improved. Inflation is expected to remain subdued for some time despite recent rise in commodity prices. Interest rate will remain at "exceptionally low levels" for an extended period of time. The plan to buy $1.25T of agency mortgage-backed securities, $200b of agency debt, $300 of Treasury securities is unchanged. and fed will monitor "the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted"

Recent development in dollar has been quite puzzling but today's strong rebound is helping to clear out the picture. Helped by strong rally in USD/CHF on SNB intervention and subsequent strength again euro, dollar index rebounded strongly from intraday low of 79.56 and is back above 80 level. The development left the fall from 81.36 to 79.56 in three wave corrective structure which now reaffirm the case the index has not topped. In otherwise, it's also reaffirming that 78.33 is the bottom of the whole fall from 89.62. We'll stay neutral in dollar index for the comment but anticipate an upside break of 80.94 resistance will suggest resumption of rise from 78.33. In such case, it should set the stage for further rise to next key resistance at 82.62 (38.2% retracement of 89.62 to 78.93 at 82.64).

Outlook in USD/CHF is also supporting this case with the break of equivalent resistance of 1.0897 and then 1.0985. EUR/USD's fall from 1.4137 and break of 1.3984 also leave the rebound from 1.3747 to 1.4137 in corrective structure. We'll stay neutral in EUR/USD for the moment but anticipate break of 1.3826 support to revive the case that EUR/USD has topped out at 1.4337.

Another development to note that the come back in yen strength. In particular, EUR/JPY failed below 135.15 resistance while AUD/JPY is kept well below 78.40 resistance. Both crosses rebounded after drawing support from medium term trend line support yesterday but are now vulnerable to a retest of the trend line in near term.