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US Dollar May Fall as FOMC Fails to Fuel Interest Rate Hike Bets

US Dollar May Fall as FOMC Fails to Fuel Interest Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar May Fall as Status-Quo FOMC Fails to Fuel Rate Hike Outlook
  • Aussie Dollar Gains as CPI Data Undermines RBA Interest Rate Cut Bets
  • 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 the US session for direction cues, with the spotlight pointing firmly to the outcome of the FOMC monetary policy meeting. Janet Yellen and company introduced a much-discussed change to the language of the policy statement at December’s sit-down, swapping out a pledge to hold rates low for a “considerable time” after the end of QE3 and replacing it with another promising to be “patient” before tightening. It seems unlikely that the cautiously slow-moving US central bank will opt to tinker with policy again so soon after making an adjustment, meaning today’s announcement will probably stick closely to the status quo.

The substance of the FOMC outcome and its interpretation by the financial markets need not align however. The markets seem primed for a hawkish result, if only because the US Dollar is hovering near six-year highs while speculative net-long positioning in the benchmark unit is at the highest since at least 1993. An outcome that sees the Fed in wait-and-see mode and fails to meaningfully advance the case for tightening may have a hard time sustaining such levels. In fact, it may serve to remind investors that the central bank has signaled no rate hikes will occur through April. That may open the door for a period of near-term profit-taking, sending the greenback downward. Technical positioning seems to agree, with prices seemingly hinting at a brewing reversal.

The Australian Dollar outperformed in overnight trade despite a seemingly soft set of fourth-quarter CPI figures. The report showed the headline year-on-year inflation rate fell to 1.7 percent, undershooting economists’ bets on a print at 1.8 percent. The slump was predictably chalked up to falling crude oil prices however and core inflation readings broadly topped expectations (albeit narrowly so). That appeared to undermine the probability that the RBA will move to cut interest rates at next week’s policy meeting, with traders likely expecting the monetary authority to treat the effects of sinking energy costs as a transitory factor (similarly to the Fed and the Bank of England). The Euro proved weakest on the session in a move that appeared to be corrective after the single currency outshined all of its major counterparts in the prior session.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

ANZ Roy Morgan Weekly Consumer Conf

113.2

-

113.6

23:30

AUD

Westpac Leading Index (MoM) (DEC)

0.00%

-

-0.06%

0:00

AUD

Skilled Vacancies (MoM) (DEC)

-1.0%

-

-0.7%

0:30

AUD

CPI (QoQ) (4Q)

0.2%

0.3%

0.5%

0:30

AUD

CPI (YoY) (4Q)

1.7%

1.8%

2.3%

0:30

AUD

CPI - RBA Trimmed Mean (QoQ) (4Q)

0.7%

0.5%

0.4%

0:30

AUD

CPI - RBA Trimmed Mean (YoY) (4Q)

2.2%

2.2%

2.5%

0:30

AUD

CPI - RBA Weighted Median (QoQ) (4Q)

0.7%

0.5%

0.6%

0:30

AUD

CPI - RBA Weighted Median (YoY) (4Q)

2.3%

2.2%

2.6%

1:45

CNY

Westpac-MNI Consumer Sentiment (JAN)

112.1

-

112.5

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

CHF

UBS Consumption Indicator (DEC)

1.42 (A)

1.29

Low

7:00

EUR

German GfK Consumer Conf (FEB)

9.3 (A)

9.0

Low

7:00

EUR

German Import Price Index (MoM) (DEC)

-1.7% (A)

-0.8%

Low

7:00

EUR

German Import Price Index (YoY) (DEC)

-3.7% (A)

-2.1%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.0945

1.1144

1.1262

1.1343

1.1461

1.1542

1.1741

GBPUSD

1.4832

1.4996

1.5097

1.5160

1.5261

1.5324

1.5488

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

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

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