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
EUR/USD
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
Oil - US Crude
Bearish
Wall Street
Bullish
Gold
Bearish
GBP/USD
Mixed
USD/JPY
Bullish
More View more
Real Time News
  • Today's article and webinar recording for those who missed it - https://www.dailyfx.com/forex/market_alert/2021/06/23/Nasdaq-100-Outpaces-Dow-Jones-as-Reflation-Trade-is-Put-on-Pause.html?ref-author=phanks&QPID=917701&CHID=9
  • U.S. stocks rallied on Tuesday with the NASDAQ composite closing at an all time high as investors shifted into technology and other growth stocks. Get your market update from @WVenketas here:https://t.co/r1UXIkHlLo https://t.co/AhuUp0gSfM
  • Fed's Rosengren: - Cryptocurrencies and money market reform both need particular attention - People are encouraged to take risks during prolonged periods of extremely low interest rates
  • 🇰🇷 Consumer Confidence (JUN) Actual: 110.3 Previous: 105.2 https://www.dailyfx.com/economic-calendar#2021-06-23
  • Forex Update: As of 20:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.32% 🇦🇺AUD: 0.30% 🇬🇧GBP: 0.11% 🇨🇭CHF: -0.00% 🇪🇺EUR: -0.13% 🇯🇵JPY: -0.25% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/UsCf9GyMQF
  • Fed's Rosengren: - We are still a long way from pre-pandemic levels in terms of employment - We still have a significant employment gap to close
  • Fed's Rosengren: - Since the economy opened up so fast, there are shortages of products and services - I expect inflation to be somewhat higher than 2% next year
  • Heads Up:🇰🇷 Consumer Confidence (JUN) due at 21:00 GMT (15min) Previous: 105.2 https://www.dailyfx.com/economic-calendar#2021-06-23
  • Fed's Rosengren: - Several areas of the economy are still struggling - While there are elevated prices for many goods and services, those prices will moderate next year
  • Commodities Update: As of 20:00, these are your best and worst performers based on the London trading schedule: Silver: 0.39% Oil - US Crude: 0.27% Gold: -0.06% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/EgbnKb4O6H
LT US Dollar Potential Damaged, Even as Fed Hints at Dec Hike

LT US Dollar Potential Damaged, Even as Fed Hints at Dec Hike

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Fed inserted language into policy statement hinting at hike soon.

- Reduced glide path of rates takes fuel out of US Dollar's tank in long-run.

- FX volatility set to remain high with FOMC and Brexit vote next two weeks - it's the right time to review risk management principles to protect your capital.

On the surface, the Federal Reserve's September policy meeting came and went exactly as expected: no rate hike materialized, but there was a strong hint of one to come in the near-future; a 'hawkish hold,' if you will. "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."

Markets have taken the clear signal, pushing up December rate hike odds from 55% pre-FOMC to 63% at the time of writing today, per Fed funds futures. Yet what we're seeing in markets appears to be quite different. The US Dollar is falling across the board, with equity markets buoyed and risk, generally speaking, being 'on.' What gives then?

Chart 1: September 2016 FOMC Economic Projections

Please add a description for the image.

This all is directly related to the Fed's updated forecasts and projected glide path of interest rates. When it became clear the Fed was going to hike rates last December, in our November 2015 report, "Fed Rate Hike Cycle Doesn’t Necessarily Bode Well for US Dollar," we wrote "Given the Fed’s tendency to lower the glide path as time marches forward, this divergence is likely to shrink – which means the Fed’s projections are going to be softer, undermining what’s been the key catalyst for the US Dollar’s strength the past several weeks: rising yields and interest rate differentials."

This is the exact problem the US Dollar is facing today, even as December 2016 rate hike odds rise: the Fed is lowering is expectations for the US economy and thus, reducing the estimated glide path of interest rates. The notable cuts: 2016 GDP; long-run GDP; 2016 PCE; and 2017 Core PCE. Metaphorically, as it's been framed in context of these projections, the Fed has taken fuel out of the US Dollar's tank.

Chart 2: FOMC Dot Plot - Septmeber 2016

Please add a description for the image.

What does this all mean for the greenback? For starters, we're going to need to see sustained wage growth over the next year if the Fed is going to start to indicate that more, not fewer, rate hikes are coming over the three-year time horizon. Second, in terms of trades, US Dollar sell-offs, in anticipation of a December hike, will probably be limited, so long as rate hike odds hold steady around 60%. However, US Dollar rallies, with knowledge that the Fed will be hiking at a slower pace to a lower terminal rate level - the "loosest tightening" possible - will be equally shallow.

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

Read more: USD/JPY Dives Post-BOJ; Preview for September FOMC Meeting

--- 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