Talking Points:
FX Markets to Look Past European News-Flow, Focus on FOMC Outcome
US Dollar to Rise if Static Fed Statement Clashes with Dovish Market Views
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A quiet economic calendar in European trading hours is likely to see traders looking ahead to what is arguably the week’s most significant bit of scheduled event risk: the Federal Reserve monetary policy announcement.The rate-setting FOMC committee is expected to deliver a final $15 billion “taper” of asset purchases, ending the QE3 stimulus program. The probability of a surprise extension seems overwhelmingly unlikely. That means the announcement’s market-moving potential will be found in guidance for the timing of the first subsequent rate hike inferred from the accompanying policy statement.
Recent weeks have witnessed a moderation in the post-QE3 Fed tightening outlook as global slowdown fears encouraged speculation that the central bank will want to safe-guard the US recovery from knock-on effects of weakness elsewhere by delaying normalization. Indeed, Fed Funds futures now reveal priced-in expectations of a rate hike no sooner than December of next year, far later than prior bets calling for a move around mid-year.
A change in the FOMC statement reflecting renewed concerns about persistently low inflation would validate this shift, weighing on the US Dollar. Alternatively, a restatement of the status quo would hint the markets’ newfound dovish lean has over-reached, offering lift to the benchmark currency. Considering the Fed’s steady hand through the first-quarter slowdown in US economic performance, the latter scenario seems more probable. We are now short EURUSD and long USDCHF.
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Asia Session
GMT
CCY
EVENT
ACT
EXP
PREV
23:50
JPY
Industrial Production (MoM) (SEP P)
2.7%
2.2%
-1.9%
23:50
JPY
Industrial Production (YoY) (SEP P)
0.6%
-0.1%
-3.3%
0:00
NZD
NBNZ Business Confidence (OCT)
26.5
–
13.4
0:00
NZD
ANZ Activity Outlook (OCT)
37.8
–
37.0
1:45
CNY
Westpac-MNI Consumer Sentiment (OCT)
110.9
–
113.2
2:07
CNY
Leading Index (SEP)
99.65
–
99.81
European Session
GMT
CCY
EVENT
EXP
PREV
IMPACT
8:00
CHF
KOF Institute Autumn Economic Forecast
–
–
Medium
9:00
EUR
ECB Publishes 3Q Bank Lending Survey
–
–
Low
9:30
GBP
Net Consumer Credit (SEP)
0.8B
0.9B
Low
9:30
GBP
Net Lending Sec. on Dwellings (SEP)
2.1B
2.3B
Low
9:30
GBP
Mortgage Approvals (SEP)
62.0K
64.2K
Medium
9:30
GBP
M4 Money Supply (YoY) (SEP)
–
-1.5%
Low
9:30
GBP
M4 Money Supply (MoM) (SEP)
–
0.3%
Low
9:30
GBP
M4 ex IOFCs 3M Annualised (SEP)
2.6%
3.1%
Low
Critical Levels
CCY
Supp 3
Supp 2
Supp 1
Pivot Point
Res 1
Res 2
Res 3
EURUSD
1.2568
1.2648
1.2691
1.2728
1.2771
1.2808
1.2888
GBPUSD
1.5944
1.6039
1.6085
1.6134
1.618
1.6229
1.6324
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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Source: Daily fx