The Dollar has found moderate strength early this morning, but remains inside of Tuesday’s trading range as it has been pressured by ideas that the Fed will be handcuffed later today. Fear of sparking an emerging market currency disaster, fears of pushing China toward even slower growth and inflation readings well below target levels suggests that the Fed has more to lose than to gain by acting pro-actively. We would not be surprised to see the Dollar nose down into and perhaps through the FOMC statement, but it is possible that the Dollar will see a significant recovery once the “on hold” news is embraced. On the other hand, the mere hint of quick or aggressive action later on from the Fed would probably kick-start a Dollar rally as the US remains head and shoulders above most others with economic pace, and it also stands to benefit the most from perpetually lower energy prices. Granted some nations are reliant on crude oil production, but the US is still a massive consumer of fuel and the low energy price situation is being lumped onto an economy that was crawling out of its employment slump without the brunt of the crude oil windfall. Buy January Dollar Index 87.00 calls early today for around 120, or wait for a post-Fed washout in the Dollar to buy the calls for 70 points.
Technical Outlook: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The close under the 18-day moving average indicates the intermediateterm trend could be turning down. There could be some early pressure today given the market’s negative setup with the close below the 2nd swing support. The next downside objective is now at 87.28. The next area of resistance is around 88.52 and 89.08, while 1st support hits today at 87.62 and below there at 87.28.