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.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Bullish
USD/JPY
Bullish
Gold
Mixed
Oil - US Crude
Mixed
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
Bitcoin
Bullish
More View more
Real Time News
  • Greed has proven to be a hindrance more than assistance for traders. How does greed impact your trading? Find out from @RichardSnowFX here: https://t.co/aT8TZjlFqP https://t.co/C4vrTm69sE
  • Central bank independence has several advantages and disadvantages. Find out what they are in-depth with @MartinSEssex here: https://t.co/wVFXbbTxf1 https://t.co/WkwZK6wtzy
  • The $GBPUSD may be carving out a 4-year bearish candlestick pattern as the $EURGBP downtrend prolongs. GBP/JPY may rise but be wary of #Brexit risks clouding technical analysis. Get your GBP market update from @ddubrovskyFX here: https://t.co/wzV4fygKWe https://t.co/hpDmrh0LLo
  • Get your technical setups for the British Pound ahead of the key #Brexit vote in Parliament this weekend here $GBPUSD $EURGBP $GBPJPY - https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2019/10/19/GBPUSD-EURGBP-GBPJPY-Technical-Analysis-Amid-Brexit-Deal-Vote.html?CHID=9&QPID=917702 https://t.co/TBdvAY6GN2
  • The Australian Dollar could reverse gains if #Brexit is forced to be delayed. Global growth slowdown woes and other fundamental risks may also undermine $AUDUSD upside progress. Get your $AUD market update from @ddubrovskyFX here: https://t.co/VAs2C3cpQj https://t.co/9mqJ0DSLZZ
  • Here is my trading video for the week ahead: '$EURUSD, #Pound, Volatility - The Biggest Risks and Opportunities Ahead' https://www.dailyfx.com/forex/video/daily_news_report/2019/10/19/EURUSD-Pound-Volatility---The-Biggest-Risks-and-Opportunities-Ahead-.html
  • $GBPUSD is on the verge of pushing above five-year resistance. A break above with follow-through may precede considerable upside movement. Get your GBP/USD market update from @ZabelinDimitri here: https://t.co/0qfh7TRWJn https://t.co/GImIwuGodX
  • The $AUD may resume its downtrend while the #ASX 200 stock index powers higher as dovish monetary policy drives interest rates lower. Get your market update from @IlyaSpivak here: https://t.co/UPlHZrt6c2 https://t.co/EIIf9xackw
  • (Fundamental Forecast) Australian Dollar Could Wilt if Brexit Delayed, Growth Risks Hang $AUDUSD #Brexit - https://www.dailyfx.com/forex/fundamental/forecast/weekly/aud/2019/10/19/Australian-Dollar-Could-Wilt-if-Brexit-Delayed-Growth-Risks-Hang.html?CHID=9&QPID=917702 https://t.co/2aOYhblN3g
  • The $USD faces selling pressure against the Malaysian Ringgit and Philippine Peso. More losses may be in store in $USDMYR as $USDPHP descends through rising support from 2013. Get your market update from @ddubrovskyFX here: https://t.co/t3kmFpmg1w https://t.co/miBrgxmtkA
FOMC Preview: For the USD, the Devil is in the Details

FOMC Preview: For the USD, the Devil is in the Details

2016-01-27 12:40:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Talking Points

- Time to moonlight as a Fed Kremlinologist - word choice matters.

- Fed is very close to setting itself up for a policy mistake in March.

- Follow trader sentiment in USD/CAD with live DailyFX SSI updates.

As we approach the January FOMC meeting this afternoon, I'm reminded of a passage from a collection of English short stories I read when I was a boy:

“I can never bring you to realise the importance of sleeves, the suggestiveness of thumb-nails, or the great issues that may hang from a boot-lace.” - Sir Arthur Conan Doyle, The Adventures of Sherlock Holmes.

Here, the good detective implores that 'you' pay attention to the little things in life. Or, as the proverb has been more commonly stated since the mid-20th century, 'the devil is in the details.' Indeed, despite lamentations from those in ivory towers, it may be best to moonlight as a Fed Kremlinologist today - someone who obsessively pours over each word in the policy statement in order to decipher the Fed's next move.

While a tedious task, the devil is in the details: the Fed chooses its word choice carefully, and will inevitably reveal its core belief about its policy path moving forward. Of course, this is the point of consternation for market participants right now, with the Fed talking up the possibility of four rates hikes this year while Fed funds futures are only pricing in one. Over the next few months, depending upon what is said today, the highest volatility scenarios would evolve if the Fed didn't do what it said it intended to do: either saying it still plans on raising rates in March, then doesn't; or it says it may not raise rates in March anymore, then ultimately does.

Given the divergence between the Fed's projected rate path and current market expectations, someone is bound to be wrong, and the repricing will force a major move in the US Dollar: higher if the market needs to price in rate hikes sooner than it currently is; or lower if the Fed backs off its intended four rate hikes path.

We know that the Yellen-led FOMC has had difficulty choosing the correct phrasing to describe its policy path in years past, as recently as what happened from Q4'14 through Q2'15. Chair Yellen stated that it would be around six months after QE ended for when the first rate hike would come, so when it didn't in March 2015, the USDOLLAR Index ultimately suffered. Should the Fed stick to its current path then not raise rates in March, for example, then the USDOLLAR Index may face a trading environment analogous to March-May 2015.

Accordingly, given the nature of today's meeting - despite only being a policy statement release, markets will inevitably begin pricing events down the line - it seems that the current "risk on/off" nature of markets caters to a uniform response along commodity currency/safe haven currency lines. Seeing as how anything USD-positive would likely be risk-negative, it's likely that the Japanese Yen, and to an extent, the Euro, react similarly to the US Dollar today. As a result, the better gauges of risk sentiment today are AUD/JPY and GBP/JPY, not EUR/JPY and USD/JPY.

Ultimately, it seems the safer path for the Fed is to stick to its previously intended glide path while highlighting the downside risks afoot in the global economy. Anything more dovish than that seems bound to set up the US Dollar for a very volatile next few months while throwing the Fed's credibility into question.

See the above video for technical considerations in EUR/USD, USD/CAD, USD/JPY, AUD/USD, and the USDOLLAR Index.

Read more: USD Breakout Needs a Spark - Will FOMC Provide it Tomorrow?

Be sure to join me and Currency Analyst James Stanley on Friday, January 29, at 09:00 EST/14:00 GMT for a special webinar discussing the ongoing slide in energy prices and their impact on FX markets.

--- Written by Christopher Vecchio, 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

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

DISCLOSURES

News & Analysis at your fingertips.