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US Dollar May Rise as Status-Quo FOMC Clashes with Dovish Market Bets

US Dollar May Rise as Status-Quo FOMC Clashes with Dovish Market Bets

2014-10-29 03:52:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • FX Markets to Look Past European News-Flow, Focus on FOMC Outcome
  • US Dollar to Rise if Static Fed Statement Clashes with Dovish Market Views
  • See Economic Releases Directly on Your Charts with the DailyFX News App

A quiet economic calendar in European trading hours is likely to see traders looking ahead to what is arguably the week’s most significant bit of scheduled event risk: the Federal Reserve monetary policy announcement.The rate-setting FOMC committee is expected to deliver a final $15 billion “taper” of asset purchases, ending the QE3 stimulus program. The probability of a surprise extension seems overwhelmingly unlikely. That means the announcement’s market-moving potential will be found in guidance for the timing of the first subsequent rate hike inferred from the accompanying policy statement.

Recent weeks have witnessed a moderation in the post-QE3 Fed tightening outlook as global slowdown fears encouraged speculation that the central bank will want to safe-guard the US recovery from knock-on effects of weakness elsewhere by delaying normalization. Indeed, Fed Funds futures now reveal priced-in expectations of a rate hike no sooner than December of next year, far later than prior bets calling for a move around mid-year.

A change in the FOMC statement reflecting renewed concerns about persistently low inflation would validate this shift, weighing on the US Dollar. Alternatively, a restatement of the status quo would hint the markets’ newfound dovish lean has over-reached, offering lift to the benchmark currency. Considering the Fed’s steady hand through the first-quarter slowdown in US economic performance, the latter scenario seems more probable. We are now short EURUSD and long USDCHF.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Industrial Production (MoM) (SEP P)

2.7%

2.2%

-1.9%

23:50

JPY

Industrial Production (YoY) (SEP P)

0.6%

-0.1%

-3.3%

0:00

NZD

NBNZ Business Confidence (OCT)

26.5

-

13.4

0:00

NZD

ANZ Activity Outlook (OCT)

37.8

-

37.0

1:45

CNY

Westpac-MNI Consumer Sentiment (OCT)

110.9

-

113.2

2:07

CNY

Leading Index (SEP)

99.65

-

99.81

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

CHF

KOF Institute Autumn Economic Forecast

-

-

Medium

9:00

EUR

ECB Publishes 3Q Bank Lending Survey

-

-

Low

9:30

GBP

Net Consumer Credit (SEP)

0.8B

0.9B

Low

9:30

GBP

Net Lending Sec. on Dwellings (SEP)

2.1B

2.3B

Low

9:30

GBP

Mortgage Approvals (SEP)

62.0K

64.2K

Medium

9:30

GBP

M4 Money Supply (YoY) (SEP)

-

-1.5%

Low

9:30

GBP

M4 Money Supply (MoM) (SEP)

-

0.3%

Low

9:30

GBP

M4 ex IOFCs 3M Annualised (SEP)

2.6%

3.1%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.2568

1.2648

1.2691

1.2728

1.2771

1.2808

1.2888

GBPUSD

1.5944

1.6039

1.6085

1.6134

1.618

1.6229

1.6324

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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