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US Dollar May Resume Rising Trend After FOMC Rate Decision

US Dollar May Resume Rising Trend After FOMC Rate Decision

2018-09-22 14:00:00
Ilya Spivak, Sr. Currency Strategist
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FUNDAMENTAL FORECAST FOR THE US DOLLAR: BULLISH

  • US Dollar drops in pre-positioning for FOMC policy announcement
  • Risk appetite recovery offers trigger for unwinding long-USD trades
  • Rising trend likely to reemerge after the passing of critical event risk

See our free guide to get help gain confidence in your US Dollar trading strategy!

The US Dollar suffered a second consecutive week of heavy losses. Price action appeared to be defined by pre-positioning for the upcoming Federal Reserve monetary policy announcement due September 26, albeit not of the kind envisioned in last week’s forecast.

Looking at market expectations implied in interest rate futures, a hike following this month’s gathering of the FOMC committee has been all but fully priced in for a long time. The probability of another one in December has more recently grown to about 80 percent.

This seems to have made for asymmetric surprise risk, with more scope for volatility if Fed rhetoric deviates from status quo in the dovish versus the hawkish direction. That probably encouraged an unwinding of speculative net-long USD exposure, which the latest COT data put at a 16-month high.

Recovery in market-wide risk appetite seems to have provided the accelerant. The greenback had enjoyed support from haven-seeking capital flows amid recent worries about trade war escalation and emerging market instability. As these concerns receded, traders found a convenient narrative for USD sales.

The down move seems unlikely to be lasting. If sentiment holds up, the Dollar’s unrivaled yield appeal ought to be supportive. If it does not, haven demand is likely to reemerge. Getting on the other side of key event risk – i.e. the FOMC announcement – seems like the prerequisite for uptrend resumption.

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

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

US DOLLAR TRADING RESOURCES

OTHER FUNDAMENTAL FORECASTS:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Japanese Yen Forecast - JPY Bears Eye 113 Level

Oil Forecast – Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4

British Pound Forecast – Bullish Sentiment Erased by Brexit Impasse

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