Trump/Xi in Focus
The US Dollar is rallying today ahead of the keenly awaited FOMC meeting this evening. Indeed, the rally is seen despite the broad expectation that the Fed will cut rates today and signal further easing, reflecting the bigger market focus on US/China trade deal optimism. Speaking yesterday ahead of tomorrow’s scheduled meeting with Chinese Premier Xi, Trump said that he is confident the two leaders will agree a “great deal” this week. These comments came alongside reports that Chinese companies bought three US soybean cargoes this week, further evidence of improved trade relations between the two. With so much focus on tomorrow’s meeting and the prospect of a trade deal, the FOCM has fallen out of the spotlight for now. However, there is still the potential for the Fed to cause some fireworks tonight if we see any surprises.
Fed Expectations & USD Reactions
The broad market expectation is for the Fed to cut rates by .25% tonight while signalling the likely need for furtehr easing ahead of year end, in line with current Fed dot-plot forecasts as of the last update. Given that this outcome is well priced in, USD is unlikely to sell off in response to the meeting, given the focus on tomorrow’s Trump/Xi meeting. Indeed, unless the Fed achieves a dovish surprise today, USD looks likely to rally into tomorrow’s meeting with further upside expected if a deal is agreed. It would likely take either, a bigger-than-forecast cut, or a more firmly dovish set of guidance form the bank to cap USD here. Given the absence of labour market data amidst the ongoing US shutdown it will be hard for the Fed to speak with any certainty but if it notes growing concern over jobs, linked to the shutdown, this might cause a spike in easing expectations, helping send USD lower once the dust settles on tomorrow’s expected trade deal announcement.
Technical Views
DXY
For now, DXY remains caught between support at 98.24 and resistance at 99.15. However, price remains above the broken bear channel highs and pressure looks to be building for a break higher. If we do push north this week, focus will quickly turn to a fresh test of the $100 level which, if broken will likely confirm the start of a broader reversal higher.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.