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.

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
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
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
Wall Street
Mixed
Gold
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
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.61%, while traders in EUR/USD are at opposite extremes with 69.17%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/4I6evWndsv
  • There is a great debate about which type of analysis is better for a trader. Is it better to be a fundamental trader or a technical trader? Find out here: https://t.co/aVAzFypAg1 https://t.co/afeXKfZT4K
  • 🇷🇺 Interest Rate Decision Actual: 4.25% Expected: 4.25% Previous: 4.25% https://www.dailyfx.com/economic-calendar#2020-10-23
  • Commodities Update: As of 10:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.43% Gold: 0.29% Silver: 0.05% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/joUZve1zxA
  • Forex Update: As of 10:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.44% 🇳🇿NZD: 0.36% 🇨🇭CHF: 0.32% 🇯🇵JPY: 0.20% 🇨🇦CAD: 0.17% 🇬🇧GBP: 0.02% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/jitwr50kLY
  • Heads Up:🇷🇺 Interest Rate Decision due at 10:30 GMT (15min) Expected: 4.25% Previous: 4.25% https://www.dailyfx.com/economic-calendar#2020-10-23
  • Indices Update: As of 10:00, these are your best and worst performers based on the London trading schedule: FTSE 100: 1.38% France 40: 1.05% Germany 30: 0.78% Wall Street: 0.26% US 500: 0.22% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/T1eJUg4Xb4
  • There are many different types of forex orders, which traders use to manage their trades. While these may vary between different brokers, there tends to be several basic FX order types all brokers accept. Learn about different FX order types here: https://t.co/lIJdiz4xSz https://t.co/40yHBdRDXx
  • Irish Foreign Minister says the issues that are preventing a Brexit deal being finalised are very much still there $GBP
  • There are three major forex trading sessions which comprise the 24-hour market: the London session, the US session and the Asian session. Learn about the characteristics of each session here: https://t.co/UVvf51HiVP https://t.co/cLrTN3ezxf
USD Uptrend Steady Before FOMC; GBP Risky Ahead of BOE

USD Uptrend Steady Before FOMC; GBP Risky Ahead of BOE

2017-11-01 11:17:00
Christopher Vecchio, CFA, Senior Strategist
Share:

Talking Points:

- Fed funds are pricing in a 0% chance of a rate move today, which isn't a surprise considering policy officials have all but explicitly said that the next hike is coming in December.

- Asymmetric risk exists for the British Pound around the BOE rate decision tomorrow, given the high degree to which a rate hike has been priced-in (89% per overnight index swaps).

- Retail trader sentiment suggests the near-term outlook for the US Dollar is neutral.

Upcoming Webinars for Week of October 29 to November 3, 2017

Thursday at 7:30 EDT/11:30 GMT: Central Bank Weekly

See the full DailyFX Webinar Calendar for other upcoming strategy sessions

The US Dollar (via DXY Index) is holding ground for the fourth consecutive day, trading at 94.64 at the time this note was written, the same level it closed at after the ECB rate decision last Thursday. Even though the Federal Reserve will release its November rate decision and policy statement today, it doesn't look like the US Dollar will be bothered one way or the other.

The Fed is one of these central banks that prefers to make major policy changes at meetings in which they have press conferences for their central bank head to soothesay market participants. The BOE (making changes at meetings with new Quarterly Inflation Reports) and the ECB (at meetings with new Staff Economic Projections) fall into this category as well: the ECB's October taper was essentially pre-announced at their September policy meeting.

Chart 1: DXY Index Daily Timeframe (June to November 2017)

USD Uptrend Steady Before FOMC; GBP Risky Ahead of BOE

So today, with neither a new Summary of Economic Projections nor a Janet Yellen press conference, the Fed won't do anything meaningful at all.

Instead our attention should be on the widely-anticipated Bank of England rate hike tomorrow, which is pretty much set in stone. According to markets (overnight index swaps) there is an 89% implied probability of a hike. In support of this point of view, since mid-August, economic data trends have firmed up (the Citi Economic Surprise Index was -51.9 on August 15, today it is +5.7). The 'big one' that the BOE has everyone talking about is headline inflation, currently sitting at +3% y/y.

However, the inflation outlook going forward looks less severe. One of the main reasons for the spike in inflation was the base effect in the trade-weighted GBP brought on by Brexit. Now that the GBP is up y/y (it bottomed in early-October 2016 post-Brexit vote), BOE policy officials think headline inflation will begin to recede naturally.

I'm partial to think that the market is right here, given that I have no information to suggest otherwise. But on the rate hike scale, I'm on the 'dovish end': if the BOE hikes, it won't be the beginning of a rate hike cycle.

The UK is facing a pseudo-/mini-stagflationary state right now. Sure, the labor market is doing well (which is why this is not true staglfationary state). But inflation is high and growth is weak, leaving the BOE in a conundrum: raise rates to stave off inflation at the risk of choking off growth; or keep rates lower for longer to keep growth conditions primed and hope that the recent base effect of the GBP limits further upside to inflation.

Chart 2: GBP/USD Daily Timeframe (August 2016 to November 2017)

USD Uptrend Steady Before FOMC; GBP Risky Ahead of BOE

With an 89% implied probability, much of the upside is priced in. Likewise, given my outlook for a 'one-and-done' hike, the forward guidance on rates shouldn't be that helpful for the Sterling. Thus, there is asymmetric risk for the British Pound tomorrow: limited upside potential, greater downside potential.

If we get the 'hawkish hike', GBP/USD could trade into the mid-1.3300s; the base case for a 'dovish hike', which could send GBP/USD back towards 1.3100; and in the event that there is no hike, GBP/USD could slip below 1.3000.

See the above video for technical considerations in the DXY Index, EUR/USD, USD/CHF, USD/JPY, GBP/USD, GBP/CHF, GBP/JPY, and GBP/NZD.

Read more: EUR/USD Head & Shoulders Still Valid; Asymmetric Risk for GBP/USD

--- 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

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

DISCLOSURES