Talking Points:
- US Dollar and Market-Wide Sentiment at the Mercy of the Federal Reserve
- Australian Dollar Sinks as Soft CPI Data Fuels RBA Rate Cut Speculation
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A quiet economic calendar in European trading hours puts the monetary policy announcement from the Federal Reserve firmly in focus. A rate hike looks overwhelmingly unlikely. Fed funds futures suggest traders expect “liftoff” no sooner than March 2016. That means tightening now would almost certainly send markets into a tailspin. Avoiding just such an outcome is almost certainly why the Fed opted against a hike in September. Officials are surely no keener to spook investors at this point.
With that said, most Fed policymakers have continued to express a preference for raising rates in 2015. If that is truly on the agenda, the statement issued by the rate-setting FOMCcommittee following the meeting will have to set the rhetorical foundation for a December move.
Hawkish commentary will clash with market expectations and force a readjustment, boosting the US Dollar. It is also likely to weigh on risk appetite, punishing the so-called “commodity currencies”.A dovish lean is likely to yield the opposite result, though follow-on momentum may be capped considering this would amount to convergence with an already priced-in outlook.
The Australian Dollar underperformed in otherwise quiet overnight trade after third-quarter CPI data fell short of economists’ expectations. The benchmark year-on-year inflation rate registered at 1.5 percent, unchanged from the second quarter but lower than consensus forecasts calling for a print at 1.7 percent.
Traders interpreted the outcome as bolstering the likelihood of RBA easing head, with the currency sinking alongside a drop in front-end Australian bond yields. OIS rates suggest the markets now see a 91 percent probability of a 25bps reduction in the cash rate at November’s policy meeting.
Losing Money Trading Forex? This Might Be Why.
Asia Session
| GMT | CCY | EVENT | ACT | EXP | PREV |
|---|---|---|---|---|---|
| 23:50 | JPY | Retail Trade (YoY) (SEP) | -0.2% | 0.4% | 0.8% |
| 23:50 | JPY | Retail Sales (MoM) (SEP) | 0.7% | 1.1% | 0.0% |
| 23:50 | JPY | Dept. Store, Supermarket Sales (SEP) | 1.7% | 1.1% | 1.8% |
| 00:30 | AUD | CPI (QoQ) (3Q) | 0.5% | 0.7% | 0.7% |
| 00:30 | AUD | CPI (YoY) (3Q) | 1.5% | 1.7% | 1.5% |
| 00:30 | AUD | CPI Trimmed Mean (QoQ) (3Q) | 0.3% | 0.5% | 0.6% |
| 00:30 | AUD | CPI Trimmed Mean (YoY) (3Q) | 2.1% | 2.4% | 2.2% |
| 00:30 | AUD | CPI Weighted Median (QoQ) (3Q) | 0.3% | 0.5% | 0.5% |
| 00:30 | AUD | CPI Weighted Median (YoY) (3Q) | 2.2% | 2.5% | 2.4% |
| 01:45 | CNH | Westpac-MNI Consumer Sentiment (OCT) | 109.7 | - | 118.2 |
| 05:00 | JPY | Small Business Confidence (OCT) | 49.2 | 49.0 |
European Session
| GMT | CCY | EVENT | EXP | PREV | IMPACT |
|---|---|---|---|---|---|
| 07:00 | EUR | German Import Price Index (MoM) (SEP) | -0.2% | -1.5% | Low |
| 07:00 | EUR | German Import Price Index (YoY) (SEP) | -3.5% | -3.1% | Low |
| 07:00 | EUR | German GfK Consumer Confidence (NOV) | 9.4 | 9.6 | Low |
Critical Levels
| CCY | Supp 3 | Supp 2 | Supp 1 | Pivot Point | Res 1 | Res 2 | Res 3 |
|---|---|---|---|---|---|---|---|
| EURUSD | 1.0955 | 1.1004 | 1.1028 | 1.1053 | 1.1077 | 1.1102 | 1.1151 |
| GBPUSD | 1.5162 | 1.5238 | 1.5269 | 1.5314 | 1.5345 | 1.5390 | 1.5466 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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