Market Chatter Hurts Dollar
The US Dollar has plunged lower into the end of the week on a surge in speculation that the Fed might opt for a deeper .5% cut at next week’s FOMC meeting. On the back of Wednesday’s CPI data, pricing for a larger cut had fallen to just 13%. However, following comments from former FOMC member Bill Dudley and reports from the WSJ and FT, that pricing has now jumped to just below 50%.
Heightened Pre-FOMC Uncertainty
During a speech yesterday Dudley said that if he were still in the FOMC he would push for a larger cut. He also noted that it was very unusual to see so much uncertainty ahead of a rate-meeting, explaining that the Fed typically tries to avoid surprising markets. Reports from the WSJ and FT citing sources saying that a larger cut is being discussed and it’s a close call between the two have added to this uncertainty ahead of the meeting.
Dovish Bets Growing
Given that we are now in the pre-FOMC blackout period (no Fed speakers), there will be little to drive the Dollar except pre-positioning. The risk now is that Dudley’s comments feed into growing dovish bets, leading USD lower and creating further pressure on the Fed. Tuesday’s retail sales figures will be the only key data ahead of the release and are likely to feed into dovish expectations, keeping USD turned lower into the meeting.
Technical Views
DXY
The Dollar is once again testing support at the 100.93 level and with momentum studies weakening, risks of a break lower are growing. Below here, 99.67 will be the key support to watch. Topside, bulls need to get back above 102.46 and the broken bull trend line to alleviate bearish pressure.
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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.