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Fed Leaves Rates, QE Unchanged, FOMC Sees 2 Rate Hikes in 2023

Forex Video: Dollar Trend, S&P 500 Break or USD/CAD Range?

Forex Video: Dollar Trend, S&P 500 Break or USD/CAD Range?

John Kicklighter, Chief Strategist

Talking Points:

  • The Dollar Index bull trend doesn't seem to be a Dollar development at all
  • Complacency on risk trends generate new milestones in quiet and subsequently curb Yen cross, AUD/USD breakouts
  • Top event risk in the week ahead includes US and UK GDP; key earnings; and important Fed, ECB and BoE speak

See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

What kind of markets are we dealing with: Range, trend or breakout? It is a simple question, but too often overlooked as we jump from trade to trade. Depending on your underlying assessment of the system, there seem to be options to choose from. If volatility mounts a transition from consolidation, breakouts from equity indexes and Yen crosses would look ideal posed for significant follow through. Should we already be one leg into trends that are building momentum, the Dollar's remarkable climb is particularly attractive. And, if the lightening stays in the bottle; there are the likes of AUD/JPY, USD/CAD and crude oil that suit range trading.

While I keep a constant vigilance of the changing market weather and suspect a significant deleveraging of risky exposure is long overdue; practicality dictates my approach. Congestion and anxiety are the primary features of our markets, so I am still partial to ranges and intend to prioritize shorter duration trades. The Dollar's (DXY Index) persistent climb to eight-month highs this past week seems to break with this view, but this looks to be the doing of certain moves. EUR/USD has accounted for much of the trade-weighted index's charge. Recent reversals from AUD/USD and USD/CAD have added week-ending push; but those pairs themselves are still holding to range. Meanwhile, Cable and USD/JPY haven't budged from their narrow trading bands.

Looking out over the coming week, there is plenty of scheduled event risk and a few active themes to work with. Risk trends is a practice in brooding threats, but clearly not worth preempting. There are few items on the docket that pose the kind of existential threat to sentiment to render us inactive until it is prints. Instead, Fed speculation for more direct Dollar contribution will likely show speculators suppressing the influence of numerous central bank speakers, but the US 3Q GDP can truly alter the course of a December 14 rate hike. That said, it is an end-of-the-week release. For Brexit fodder, UK data will be topped by local 3Q GDP while BoE Governor Carney's discussion of the Brexit impact on economy at the House of Lords Economic Committee could add to the Prime Minister May row. Other event risk to keep tabs on includes earnings (Apple and Deutsche Bank top listings), ECB President Draghi's lecture on monetary policy, French 3Q GDP release; US consumer sentiment survey and Japanese inflation benchmark. We discuss trading conditions and catalysts in the week ahead in this weekend Trading Video.

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