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
Bearish
Oil - US Crude
Mixed
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
Bearish
USD/JPY
Bullish
More View more
Real Time News
  • GBP turbulence persists as investors eye the next round of EU-UK Brexit negotiations. Cautious optimism signals a deal is near. Get your #currencies update from @JMcQueenFX here: https://t.co/WjU4oYpmf7 https://t.co/VcNnCjm0B2
  • An economic calendar is a resource that allows traders to learn about important economic information scheduled to be released. Stay up to date on the most important global economic data here: https://t.co/JdvW6HNuqV https://t.co/AiLoS7DrEQ
  • 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/3Wked6GBOp https://t.co/HicBmGrokK
  • 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/7kPzAoNoLG https://t.co/5lbyBJeeA7
  • Entry orders are a valuable tool in forex trading. Traders can strategize to come up with a great trading plan, but if they can’t execute that plan effectively, all their hard work might as well be thrown out. Learn how to place entry orders here: https://t.co/lAFyv1gM0P https://t.co/ubLimoYAcr
  • What is the outlook for financial markets ahead of the first presidential debate and how are Democratic nominee Joe Biden and President Donald Trump doing in the polls? Find out from @ZabelinDimitri here:https://t.co/QQwAZTxZFg https://t.co/4cRhRCiv3C
  • The US Dollar could gain as it forms bullish technical formations against the Singapore Dollar and Malaysian Ringgit. USD/PHP may have bottomed, will USD/IDR rise next? Find out from @ddubrovskyFX here:https://t.co/3UIKmbLIvD https://t.co/PY2YyH4vkQ
  • The Indian Rupee may be at risk to the US Dollar as USD/INR attempts to refocus to the upside. This is as the Nifty 50, India’s benchmark stock index, could fall further. Get your $USDINR market update from @ddubrovskyFX here:https://t.co/3wsYlSxd26 https://t.co/z2qB9p8IgX
  • A proxy of #EmergingMarket capital flows hit its lowest since July, falling with the #SP500 after some divergence This is as #USD gained against its developing FX counterparts, highlighting potential risk of a spillover outwards Stay tuned for next week's #ASEAN fundy outlook! https://t.co/kAvpnb0EXO
  • 4 consecutive down weeks for the #SP500, last matched over a year ago #Fed balance sheet continues to gain very cautiously, now at its highest since the middle of June. Still, at slower pace than last week Focus shifts to US fiscal stimulus next week in the House of Reps https://t.co/f8zpSILm86
Preview for December FOMC and Implications for US Dollar

Preview for December FOMC and Implications for US Dollar

2017-12-13 12:45:00
Christopher Vecchio, CFA, Senior Strategist
Share:

Talking Points:

- Fed funds futures are pricing in a 100% chance of a rate hike today; that alone won't move the US Dollar significantly higher.

- Instead, the Fed will need to convince markets that interest rates will be moving higher and faster than previously anticipated - a tall task.

- Retail trader sentiment continues to suggest a mix trading environment for the US Dollar this week.

Upcoming Webinars for Week of December 10 to 15, 2017

Thursday at 7:30 EST/12:30 GMT: Live Event Coverage: ECB Rate Decision

See the full DailyFX Webinar Calendar for other upcoming strategy sessions

The December FOMC meeting seems merely procedural at this point. The Federal Reserve will hike its main rate to 1.25-1.50%, citing further improvement in the labor market (the latest NFP report showed the unemployment rate at 4.1%) as the prime reason. Evidence that inflation has started steady and slip near the FOMC's medium-term target of +2% may prove to be troublesome for the greenback.

The key for the US Dollar today, however, is to what degree of confidence the FOMC has in the US economy, or simply, 'how quickly does the Fed think it will be able to raise rates next?'

Before the September FOMC meeting (the last one with a new Summary of Economic Projections (SEP) and a Yellen press conference), markets were pricing in a 45% chance of a 25-bps rate hike in December 2017 and a 65% chance of another in June 2018.

After the September FOMC meeting, including the past few weeks of US economic data, markets have been quick to fully price-in a rate hike at the coming meet (Fed funds futures imply a 100% chance), but they have not moved on the timing of the next rate hike: June 2018 is still the next period in which Fed funds futures imply greater than a 60% chance of a rate hike at that meeting.

There is some dissonance going into today's meeting, given that the FOMC will need to defend its hawkish stance - it continues to call for three to four hikes in 2018 - in order to see the US Dollar rally significantly further. Given the prospect of a downgrade to the 2018 inflation forecast, it seems likely that a small downgrade to the Fed's 'dot plot' and thus the projected path of interest rates, the 'glide path,' will occur as well. Since the Fed's rate hike cycle started in December 2015, this pattern by the Fed of being 'hawkish up front, only to reduce tightening expectations on the backend' has proven to be detrimental to the US Dollar.

EUR/USD itself may be currently predisposed for lower prices (and USD/JPY for higher prices given interest rate differentials), but the FOMC meeting will only yield such a result of the Fed rate hike expectations curve steepens – a difficult scenario to envision.

We'll be keenly interested in hearing what Fed Chair Yellen thinks about potential changes in fiscal policy now that the US tax reform bill is close to making its way into law. At previous meetings with new forecasts, Fed officials have cautioned that they had not factored any degree of fiscal stimulus into their projections.

Should they choose to do so at this meeting, the feedback loop between fiscal stimulus and tighter monetary policy would be made apparent and perhaps offer US Dollar bulls something to work with: the combination of reduced taxes and increased government spending will lead to deficits; deficits tend to push up inflationary pressures; and with inflation already near the Fed's +2% medium-term target, any policy that pushes up inflationary pressures even more will necessitate a faster pace of rate hikes.

See the above video for for an archive of this morning's "Mid-Week Trading Q&A: FOMC Preview" webinar in which technical outlooks for the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, Gold, and US yields were reviewed.

Read more: GBP/USD Holds Support, USD/CAD Stuck in Range - For Now

--- 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