News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • RT @FxWestwater: Japanese Yen Forecast: JPY Crosses Eye BoJ, CPI as Haven Flows Bolster Yen Strength Link: https://www.dailyfx.com/forex/fundamental/forecast/weekly/jpy/2021/09/18/Japanese-Yen-Forecast-JPY-Crosses-Eye-BoJ-CPI-as-Haven-Flows-Bolster-Yen-Strength.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https:/…
  • Traders utilize varying time frames to speculate in the forex market. The two most common are long- and short-term-time frames which transmits through to trend and trigger charts. Learn more about time-frame analysis here: https://t.co/9S5tXIs3SX https://t.co/FVisZuTP6M
  • Stocks appear to be in a corrective phase but could get put to the test; levels and lines to watch in the days ahead. Get your weekly equities forecast from @PaulRobinsonFX here: https://t.co/H1BaTlIHjY https://t.co/zP3mjfslSD
  • Currency exchange rates are impacted by several factors. Are different world leaders a contributing factor? Find out here: https://t.co/4jsORznRTE https://t.co/Of1thU4zXw
  • Further your forex knowledge and gain insights from our expert analysts on AUD with our free guide, available today: https://t.co/p2FhEwym1E https://t.co/MjiYB85TSF
  • Many people are attracted to forex trading due to the amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. Learn about FX leverage here: https://t.co/BdgFmkRxVw https://t.co/fIO9TP7D62
  • Trading Forex is not a shortcut to instant wealth, excessive leverage can magnify losses, and sentiment is a powerful indicator. Learn about these principles in depth here: https://t.co/lZFM8youtX https://t.co/Xja8DHUqlH
  • Risk management is one of the most important aspects of successful trading, but is often overlooked. What are some basic principles or risk management? Find out from @PaulRobinsonFX here: https://t.co/IsnpfJhp91 https://t.co/9po5Lg4vnR
  • The Japanese Yen is eyeing the upcoming Bank of Japan rate decision and CPI figures, but JPY crosses will likely remain dependent on broader market sentiment. Get your weekly $JPY forecast from @FxWestwater here: https://t.co/x9rbQpPfWe https://t.co/2x1R5XTVea
  • Consolidation or bull flag? A bull flag is a continuation pattern that occurs as a brief pause in the trend following a strong price move higher. Learn how to better spot these formations here: https://t.co/yOEvLjKnct https://t.co/uCaWQiu4Ly
Central Bank Weekly: USD Ignores Rising Odds; CAD Eyes Hike Next Week

Central Bank Weekly: USD Ignores Rising Odds; CAD Eyes Hike Next Week

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Fed rate hike odds for March 2018 have climbed from 50% to 80% since November, but the DXY Index has failed to rally.

- January Bank of Canada rate hike odds have jumped sharply over the the past month, carrying the Canadian Dollar higher along the way.

- See the full DailyFX Webinar Calendar for other upcoming strategy sessions.

Upcoming Webinars for Week of January 14 to 19, 2018

Monday at 7:30 EST/12:30 GMT: FX Week Ahead: Strategy for Major Event Risk

Wednesday at 6:00 EST/11:00 GMT: Mid-week Trading Q&A

Thursday at 7:30 EST/12:30 GMT: Central Bank Weekly

US Dollar Ignoring Rising March 2018 Rate Hike Odds

Rate hike odds for the Federal Reserve's January meeting are proving immaterial, given that the Fed only hikes at meetings in which they produce a new Summary of Economic Projections (SEP) and the Fed Chair holds a press conference. The next meeting that sees these events come to pass is in March.

Despite the fact that March hike odds have been climbing steadily for the past three months, the DXY Index has decoupled since the December FOMC meeting and has traded lower through the start of 2018.

Chart 1: DXY Index versus March FOMC Rate Hike Odds (September 2017 to January 2018)

Central Bank Weekly: USD Ignores Rising Odds; CAD Eyes Hike Next Week

For the US Dollar, this is the market passing judgement on the Fed's projected path of three rate hikes this year. Much of this has to do with the attention being paid to the tax reform bill. The fact of the matter is that the tax reform bill will be a boon for corporate earnings - which are already strong and trending positive - but not necessarily for jobs growth.

Realistically, most of the funds repatriated or earned via higher revenue (thanks to lower taxes) will be given back to shareholders via dividends or share buybacks; raises for workers (wage growth), hiring (jobs growth), or jobs training (productivity increases) are at the bottom of the priorities list for most US corporations.

Accordingly, we should not be surprised by how various asset classes are reacting: US equities are quite strong thanks to the prospect of boosted earnings in 2018; the US yield curve (2s10s) remains near its flattest levels of the past 12-months as long-term inflation and growth expectations haven't improved; and as a result, the US Dollar has not enjoyed a bid higher.

Perception of US fiscal policy is guiding the US Dollar right now, not the usual speculation around rate hike expectations (the 20-day correlation between the DXY Index and March 2018 hike odds is -0.52).

Canadian Dollar Eyes 25-bps Rate Hike by BOC Next Week

Since breaking above 1.2900 on the day of the Fed's December policy meeting, USD/CAD has fallen by -3% (and as much as -4.3%) thanks to a sharp turnaround in Bank of Canada rate hike expectations. Pricing 35% on December 20, the January rate hike odds are now pricing in an 80% chance of a move next week.

Chart 2: CAD/USD Spot versus January BOC Rate Hike Odds (September 2017 to January 2018)

Central Bank Weekly: USD Ignores Rising Odds; CAD Eyes Hike Next Week

All signs point to the BOC raising rates next week. While suggesting "patience" at their December policy meeting, the two major impediments to an accelerated rate hike timeline - persistently low inflation and uncertainty over the strength of the labor market - have both been summarily addressed over the past two months of data.

As such, with rate hike odds for next week's BOC meeting still needing to converge at 100% when the rate hike is actualized, the Canadian Dollar should still be well-supported (the 20-day correlation between CAD/USD and January 2018 hike odds is +0.63).

While this means a retest of the yearly lows for USD/CAD near 1.2350 could be on the horizon, it also means that the BOC will have to offer additional hawkish forward guidance on rates (i.e. suggesting that another rate hike could happen by June to keep the BOC on track for a minimum of three this year) to provoke a move down to fresh yearly lows.

Read more: USD Dunks on Early Signs of Another ’Taper Tantrum’

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

View our long-term forecasts with the DailyFX Trading Guides.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES