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US Dollar, Market Sentiment at the Mercy of the Federal Reserve

US Dollar, Market Sentiment at the Mercy of the Federal Reserve

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
  • See Economic Releases Directly on Your Charts with the DailyFX News App

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

23:50JPYRetail Trade (YoY) (SEP)-0.2%0.4%0.8%
23:50JPYRetail Sales (MoM) (SEP)0.7%1.1%0.0%
23:50JPYDept. Store, Supermarket Sales (SEP)1.7%1.1%1.8%
00:30AUDCPI (QoQ) (3Q)0.5%0.7%0.7%
00:30AUDCPI (YoY) (3Q)1.5%1.7%1.5%
00:30AUDCPI Trimmed Mean (QoQ) (3Q)0.3%0.5%0.6%
00:30AUDCPI Trimmed Mean (YoY) (3Q)2.1%2.4%2.2%
00:30AUDCPI Weighted Median (QoQ) (3Q)0.3%0.5%0.5%
00:30AUDCPI Weighted Median (YoY) (3Q)2.2%2.5%2.4%
01:45CNHWestpac-MNI Consumer Sentiment (OCT)109.7-118.2
05:00JPYSmall Business Confidence (OCT)49.249.0

European Session

07:00EURGerman Import Price Index (MoM) (SEP)-0.2%-1.5%Low
07:00EURGerman Import Price Index (YoY) (SEP)-3.5%-3.1%Low
07:00EURGerman GfK Consumer Confidence (NOV)9.49.6Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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