We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The trio of central banks overseeing the commodity currencies have already cut their main rates to all-time lows. Get your market update from @CVecchioFX here: https://t.co/OSUXrN5P3j https://t.co/Cxt86jl28N
  • The Japanese Yen fell for a third consecutive week with price testing resistance into June open. Here are the levels that matter on the $USDJPY weekly technical chart. Get your #currencies market update from @MBForex here: https://t.co/1QPXP0g7Ew https://t.co/WUtXHoRoQX
  • $USDZAR: A rally from here could be an important tell as to whether the level seen as support previously (17.76) will turn into a point of resistance for sellers to lean against. Get your $USDZAR technical analysis from @PaulRobinsonFX here:https://t.co/TNsQ4JJu6E https://t.co/I4yCjs2ja0
  • The US dollar continued to sell-off this week and the greenback’s future will be decided by commentary from the White House and not the Federal Reserve over the coming days and weeks. Get your #currencies market update from @nickcawley1 here: https://t.co/lpHneO3s2h https://t.co/bZ5klohLNd
  • #Gold prices have continued to push higher as expectations have built for global Central Banks to remain very loose and passive with monetary policy for the foreseeable future. Get your $XAUUSD technical analysis from @JStanleyFX here: https://t.co/h5tF3kAZfd https://t.co/VAYy9FGHcQ
  • Major investment bank models have touted USD selling, given the outperformance in US equities relative to its counterparts over the past month. How is this likely to impact the month-end rebalancing? Find out from @JMcQueenFX here:https://t.co/MtNrHmXZpD https://t.co/YvoHlUsdVr
  • U.S. Market Analyst at https://t.co/JsVsSmefgR, Shain Vernier covers - ✔️ Safe haven assets in volatile markets ✔️ Central banks and governments ✔️ How will commodities trade in a recession Only on Trading Global Markets Decoded #podcast. Tune in here: https://t.co/1UmEzEbwiy https://t.co/X15k6b4ZyB
  • The month of May saw equities rise across the board. The #Dow Jones and #DAX 30 will look to hold above nearby support while the #Nasdaq 100 may look to attack all-time highs. Get your #equities market update from @PeterHanksFX here: https://t.co/dQxkG68R0I https://t.co/cgfcOs14qG
  • There is a dramatic departure between yield curve pricing for a recession and other measures of near-term growth; the Q2’20 Atlanta Fed GDPNow is extremely alarming.Get your market update from @CVecchioFX here: https://t.co/eMd3T8EwDO https://t.co/56oUP6we9U
  • The #DAX has now closed the gap from the beginning of March with the index breaking above 61.8% fib at 11592. Get your DAX market update from @JMcQueenFX here: https://t.co/wr67nkxc8z https://t.co/CkxPZn1v3t
Dollar Traders Uneasy Over Federal Reserve’s Market Impact Post-ECB

Dollar Traders Uneasy Over Federal Reserve’s Market Impact Post-ECB

2016-03-12 04:01:00
John Kicklighter, Chief Strategist
Share:
Dollar Traders Uneasy Over Federal Reserve’s Market Impact Post-ECBDollar Traders Uneasy Over Federal Reserve’s Market Impact Post-ECB

Fundamental Forecast for Dollar: Neutral

  • The Federal Reserve’s March 16 policy decision and updated forecasts is a key event for the entire financial system
  • Unexpected shifts in the market’s response to the ECB and BoJ easing efforts upends the traditional fundamental expectation
  • See how retail FX traders are positioning in the Dollar-based majors heading into, and after the FOMC rate decision.

What was once a straightforward interpretation of monetary policy’s impact on exchange rates and capital markets is now a source of confusion and abject volatility. The Dollar will be right in the center of this fundamental storm in the week ahead with the Federal Reserve’s monetary policy meeting on tap. This is not only an event where the central bank will determine whether or not to hold the benchmark rate, but it is also the quarterly event with updated forecasts and Chair Yellen’s press conference. In other words, it will be difficult not to stir the markets. That said, following the surprising market reactions to the ECB’s and BoJ’s most recent efforts to escalate their accommodative policies; the speculative rank will have to establish what a dovish or hawkish outcome means for the Dollar and for financial market sentiment.

Looking at the particulars of this week’s top event, the Federal Open Market Committee’s (FOMC) policy meeting will conclude Wednesday at 18:00 GMT (the US will enter daylight savings time this weekend). According to overnight swaps, the probability of a hike at this meeting is essentially zero – though, traders shouldn’t write off the possibility of a surprise. The monetary policy statement will carry less significance because its subtlety will be overridden by the unambiguous forecasts.

All facets of the central bank’s outlook are important in the economic sense, but they are not all equally market moving. Forecasts for employment trends will be quickly brushed over as the trend of improvement is well established and can stand moderation. Inflation and GDP projections will carry more weight as we see the group’s views for the more contentious objectives for monetary policy. Cutting to the heart of the matter though will be the interest rate forecasts themselves (called the ‘Dot Plot’). As of the December forecast, the outlook was for 100 basis points worth of hikes through December 2016 (bringing the range to 1.25 – 1.50 percent), 200 bps higher than today by the end of 2017 and just under 300 bps of higher by the close of 2018. That’s ambitious given recent circumstances.

The practicality of tightening this year according to those forecasts makes it unlikely. There are seven FOMC meetings left this year - including the March 16 event. The group has made it explicitly clear – both collectively and amongst its individuals – that they will move gradually, which would suggests keeping to 25 bp moves and no consecutive increases. To hike four times this year (at 25 bps each), they would have to hike at this meeting and move every other gathering with a final hike in December to meet that goal. That is doubtful. Growth has slowed, the group has turned the spotlight back on international concerns, inflation is rising but slow to pick up momentum and the language amongst officials has taken a more neutral/dovish tone. A downgrade is therefore likely.

Even if we were certain of a downgrade in the pace for hikes this year, it is not clear how the market would respond. The Dollar has dropped ahead of the important meeting deflating some of the hawkish premium, but there is still considerable bullish interest behind the currency considering it a mild pace would still be a severe contrast to its counterparts. Furthermore, we have seen a shift in how the market responds to further drive to the dovish extreme of the policy spectrum. The BoJ adopted negative rates and saw the markets flip against the traditional ‘dovish move equates to bullish capital market, bearish currency’ equation within 24 hours. The ECB’s stimulus bomb this past week broke the function instantly. The market response will likely be a settling of confused speculative interpretations.

Dollar Traders Uneasy Over Federal Reserve’s Market Impact Post-ECB

The Rate Forecasts (‘Dot Plot’) from the Federal Reserve’s December 16 Projections

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

DISCLOSURES

News & Analysis at your fingertips.