Talking Points:
US Dollar and Market-Wide Sentiment at the Marcy of the Federal Reserve
Australian Dollar Sinks as Soft CPI Data Fuels RBA Rate Cut Speculation
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A quiet economic calendar in European trading hours puts the monetary policy announcement from the Federal Reserve firmly in focus. A rate hike looks overwhelmingly unlikely. Fed funds futures suggest traders expect “liftoff” no sooner than March 2016. That means tightening now would almost certainly send markets into a tailspin. Avoiding just such an outcome is almost certainly why the Fed opted against a hike in September. Officials are surely no keener to spook investors at this point.
With that said, most Fed policymakers have continued to express a preference for raising rates in 2015. If that is truly on the agenda, the statement issued by the rate-setting FOMCcommittee following the meeting will have to set the rhetorical foundation for a December move.
Hawkish commentary will clash with market expectations and force a readjustment, boosting the US Dollar. It is also likely to weigh on risk appetite, punishing the so-called “commodity currencies”.A dovish lean is likely to yield the opposite result, though follow-on momentum may be capped considering this would amount to convergence with an already priced-in outlook.
The Australian Dollar underperformed in otherwise quiet overnight trade after third-quarter CPI data fell short of economists’ expectations. The benchmark year-on-year inflation rate registered at 1.5 percent, unchanged from the second quarter but lower than consensus forecasts calling for a print at 1.7 percent.
Traders interpreted the outcome as bolstering the likelihood of RBA easing head, with the currency sinking alongside a drop in front-end Australian bond yields. OIS rates suggest the markets now see a 91 percent probability of a 25bps reduction in the cash rate at November’s policy meeting.
Losing Money Trading Forex? This Might Be Why.
Asia Session
GMT
CCY
EVENT
ACT
EXP
PREV
23:50
JPY
Retail Trade (YoY) (SEP)
-0.2%
0.4%
0.8%
23:50
JPY
Retail Sales (MoM) (SEP)
0.7%
1.1%
0.0%
23:50
JPY
Dept. Store, Supermarket Sales (SEP)
1.7%
1.1%
1.8%
00:30
AUD
CPI (QoQ) (3Q)
0.5%
0.7%
0.7%
00:30
AUD
CPI (YoY) (3Q)
1.5%
1.7%
1.5%
00:30
AUD
CPI Trimmed Mean (QoQ) (3Q)
0.3%
0.5%
0.6%
00:30
AUD
CPI Trimmed Mean (YoY) (3Q)
2.1%
2.4%
2.2%
00:30
AUD
CPI Weighted Median (QoQ) (3Q)
0.3%
0.5%
0.5%
00:30
AUD
CPI Weighted Median (YoY) (3Q)
2.2%
2.5%
2.4%
01:45
CNH
Westpac-MNI Consumer Sentiment (OCT)
109.7
–
118.2
05:00
JPY
Small Business Confidence (OCT)
49.2
49.0
European Session
GMT
CCY
EVENT
EXP
PREV
IMPACT
07:00
EUR
German Import Price Index (MoM) (SEP)
-0.2%
-1.5%
Low
07:00
EUR
German Import Price Index (YoY) (SEP)
-3.5%
-3.1%
Low
07:00
EUR
German GfK Consumer Confidence (NOV)
9.4
9.6
Low
Critical Levels
CCY
Supp 3
Supp 2
Supp 1
Pivot Point
Res 1
Res 2
Res 3
EURUSD
1.0955
1.1004
1.1028
1.1053
1.1077
1.1102
1.1151
GBPUSD
1.5162
1.5238
1.5269
1.5314
1.5345
1.5390
1.5466
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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Source: Daily fx