General market theme
The US dollar took control of the major currencies again yesterday just a day before the Fed meeting that is scheduled for today as investors seem to believe that it will be a bullish one. As we have said many times it is rather difficult for the Fed to raise interest rates in this meeting, so the focus will be on the future guidance they will offer and we should expect volatility to be at high levels.
If the Fed leaves rates unchanged it will be bad for the dollar, as the market expected more than one rate hike by the end of the year and that would not be the case should they opt to stay put. However, if Janet Yellen hints on a bullish agenda looking ahead and/or some of the FOMC members vote in favor of a hike right now, then the dollar will quickly rebound and move higher as expectations for a move before the end of the year will create demand for the US currency.
Price action highlights
The euro pushed further lower yesterday as the dollar was in demand once again, and the rate dropped below the 1.1150 level to print a 1.1120 low overnight. As we mentioned above we expect increased volatility today, and depending on how many members vote in favor of a rate hike and how the Fed will prepare investors for the rest of the year, the euro stands to lose even more ground.
We should approach the single currency with a patient manner today as the volatility might drive the currency in different directions before settling down.
The cable printed a fresh low yesterday when it penetrated below the 1.3000 barrier to go as low as the 1.2950 area, where it settled for the rest of the day ahead of the Fed event later today. Brexit-related concerns and dollar’s momentum are keeping the pound under pressure and the bias remains to the downside.
Depending on the outcome of the Fed meeting we could see the pound dropping further lower, and for a reversal to the upside an ultra-bearish Janet Yellen is needed, which seems rather unlikely.
Focus of the day
Without a doubt the Fed meeting tonight is the most important event of the day and it will shape the outlook of the major currencies for the weeks to come. Earlier in the day the UK Public Sector Finances and borrowing figures will do little to change the outlook of the pound as investors will be focused on whether the FOMC members voted to change their rate policy, how many voted in favor of doing so and what we should expect looking ahead.
Disclaimer: The information provided by InvestingBetter.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. InvestingBetter.com are merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite.
InvestingBetter.com and/or its owners will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on InvestingBetter.com. InvestingBetter.com does not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.