FOMC PREVIEW AND DOLLAR’S DIRECTION

US Dollar remains under heavy selling pressure against all other major currencies throughout January 2017. And now it is trying to wipe out its all post-election rally gains.

As after nearly 2 weeks of new government regime, markets are still waiting for some concrete fiscal policy announcements but Mr. Trump is keeping them on edge by targeting other major world economies like China, Japan, and Germany with their lower currency valuation approach and trade issues with them.

Also, the temporary ban on immigrants as well as opting out of TPP and renegotiation of NAFTA deals also fueling uncertainty in the market. Now some market players also fearing that Mr. Trump may devaluate US currency in near future which will be a great risk for G-20 countryís free trade pact.

The only thing which was driving markets and dollar higher were Mr. Trumpís promise of more infrastructure spending and lower taxes which would result in higher growth but until unless White House provide some concrete indication toward these policies, market and dollar will remain under pressure.

 

On Tuesday FOMC started their 2 days policy meeting and their decision will come out at 2 PM EST which will be followed by FOMC statement. There is no press conference and FED projection today.

As the market is not expecting any major policy changes in todayís decision but all eyes will be on how FOMC psychology is changed from their last Dec 2016 meeting.

  1. If FED kept repeating their 3 hikes tone with some refresh hawkishness and if they also able to drop some hints for March 2017 hike then the dollar will get higher as a relief rally and for higher US yields.
  2. But if FED shows some worry towards governmentís foreign policies and dollarís strength and keep repeating their data dependent approach then it will show their dovish stance as after Mr. Trumpís executive order on stopping of Federal hiring will result in a drop of NFP data in march report by at least 40k which will increase labor slack again and a higher unemployment rate.

That will make sure that FED will have to at least until June for a further hike. And this will result in another US dollar and bonds selling rally.

But as we looked into history FOMC pays very little attention towards politics and in their last statement, they said the dollar is higher because of policy differentials across the globe so 2nd scenario should not happen. But you never know YELLEN who remain a hardcore Dove throughout 2016 and always disappointed USD bulls except December meeting.

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