Never miss a story from Christopher Vecchio

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Christopher Vecchio

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Talking Points:

- The Federal Reserve will hike rates 25-bps tomorrow, but given that the event is 100% priced in per Fed funds futures, the US Dollar needs something else to spark a rebound.

- The technical structure for the US Dollar is pointing lower in the near-term amid a strengthening bearish momentum profile.

- Retail trader sentiment towards the US Dollar is now bearish as traders sell rallies in EUR/USD and GBP/USD.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The US Dollar (via the DXY Index) is trading lower following the daily hammer established yesterday, which hinted at a possible rebound. Alas, with the DXY Index falling back after another test of resistance at the late-August lows, losses are once again taking shape. It's worth noting that the drop in the US Dollar is occuring while the US Treasury 10-year yield moved up past 3.100%, a fresh yearly high.

For US Dollar traders, nothing is more important over the next day than what happens at tomorrow's Federal Reserve policy meeting. It is essentially universally accepted that the FOMC will hike rates by at least 25-bps tomorrow, with some taking the precocious stance that a 50-bps hike will materialize. Fed funds peg the odds of a 25-bps hike tomorrow at 100%, with a 2.1% chance of a 50-bps hike.

There are a few things to consider about current market pricing. At a minimum, a 25-bps rate hike will not help lift the US Dollar; it is already priced in. Because there is a small chance of a 50-bps hike, the fact that this won't materialize will take some wind out of the US Dollar's sails.

To this end, it doesn't seem likely that the excessive optimism about a 50-bps hike will result in expectations for the Fed's December meeting (the next time a new Summary of Economic Projections is released) to increase. After all, there is already a 72% chance of a fourth and final 25-bps hike priced in for December. Accordingly, this leaves the US Dollar in a 'buy the rumor, sell the news' type of situation, even if the buck hasn't been bid up beforehand.

DXY Index Price Chart: Daily Timeframe (January to September 2018) (Chart 1)

US Dollar Remains Biased Lower Before Tomorrow's FOMC Meeting

If the fundamental bias for the US Dollar is bearish, then it is complementing an already bearish technical structure that's emerged in recent days. The DXY Index has continued to hold below the late-August swing low near 94.43; today would be the fourth consecutive close below. Price remains below its daily 8-, 13-, and 21-EMA envelope, while both daily MACD and Slow Stochastics continue to trend lower in bearish territory.

The outlook for the US Dollar will remain bearish over the coming days until 94.43 is retaken by the end of this week, which would constitute a reversal through both the daily 8- and 13-EMAs, the late-August swing low, and the descending trendline off of the August and September highs.

Read more: FX Week Ahead: FOMC & RBNZ Rate Decisions, EZ CPI, Canadian GDP


Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX