Pre-FOMC Trade Setups in USD-pairs
- USDOLLAR uptrend remains - only tentatively, though.
- See the March forex seasonality report for trends in the QE-era.
Comparatively, the strength of the US economy has gone unmatched over the past year, especially with regards to the labor market: the unemployment rate currently sits at 5.5%, at the topside of the Fed's central tendency range for "full employment." While the ECB, BoJ, and PBoC grapple with easing measures, the US Dollar has surged higher, as investors position themselves for the first rate hike in a decade.
Today, even while the main interest rate is expected to be held at 0.25%, the Fed will likely alter any restrictive language - "patience" - opening the door for a mid-year rate increase. However, the outcome on the US Dollar is not so certain, in a market handicapped by overly bullish traders in the greenback, and extreme bearishness seen in positioning elsewhere.
Even if the Fed is switching its policy stance to a 'meeting by meeting' basis for determining if/when to raise rates, recent consumption and inflation data has been so poor, that US data relative to expectations is off to its worst start in five years. Indeed, the greenback's path over the coming days and weeks may hinge on the tone of Fed Chair Yellen's press conference rather than anything else, considering how 'priced in' a rate hike sometime between June and September is.
--- Written by Christopher Vecchio, Currency Strategist
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