DXY: Hammered Again By Trump, FOMC is Next??

Author: FxGrow Investment Research Desk
January 31, 2018 @ 6:03 AM (UTC)



The Us Index extended the down consolidation sessions, still trading below 90 level throughout the week and has failed to give any new clues about next destination. On Wednesday Asian trading session, the DXY traded narrow with $0.25 range, although expectations were for more as Trump was giving the State of Union Speech. 

The president, instead of an optimistic content as expectations were placed by analysts, Trump delivered a speech that projected sadness reminding the audience of how unfair trade treaties are abusing the U.S and a more robust push-back against unfair trade practices by other nations. It is obvious by now how Trump favors a lower US Dollar where it serves his purpose regarding imports - exports and building a strong economy as the president pictures. 

The next main event for today will be US Feds rate decision the along FOMC statement.

The first section regarding rates, odds are placed at more than 95% for a no change at current 1.50% with inflation on 12 months’ basis continues to run below FOMC's target at 2%. As for employment sector, a strong data has been demonstrated and has hardly fell below 4.1% which indicates a healthy sector. Average Earnings and Core Durable Goods Order are ticking up positively. 

Stating the above leaves the statement and its content as the vague second section where the Yellen & Co. could play the market as they present their hidden cards. The main focus will be on what's hidden for 2018, more hikes or less hikes. Odds for March rates are expected for an increase at 93% as Goldman Sachs stated. As for the Fed's balance sheet, it is likely to bring anything new. 

A hawkish scenario would state that recent data is showing a strong economy and despite inflation missing target, we expect that numbers will add up and target will be met, thus there will more rates hikes in 2018 as the Feds grow intolerant for inflation.

A dovish scenario would hint that inflation is still running below 2% target, and until we see a progress or data ticking up, the U.S Feds has no reason to rush. This leaves market to run depending on next CPI report. Also, March hike is not a done deal yet, we may have to take another look at coming data, hence decreasing the odds. 

The most common scenario would be a neutral tone where nothing new will be laid on out on coming rates, nor balance sheet reduction since its Yellen last event where she heads the FOMC, and Powell will take over as next nominee, but still Yellen could surprise us.

Finally, market has to pay attention for this part. What if market was already trading the buck based on expectations for a hike and the sharp depreciation for DXY was the result on this scenario? We could see a reversal the US Index with a remarkable rally and sharp tone, pushing all rival currencies down. The suggested scenario has happened before when Trump took the oval office. A hike was delivered and the DXY plunged severely as buy the rumor, sell the fact. 

Hours from now and all the image will be clear.  

US Index Technical overview:  

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