Market News & Analysis

Could the Fed derail the current USD rally?

Jul 31, 2019 | Analysis, Forex News

Today’s High-impact economic USD news:

10:15 pm ADP Non-Farm Employment Change 

04:00 am FOMC Statement – Federal Funds Rate EXP cut of 25 BP 

04:30 am FOMC Press Conference


Could tonight’s Federal Reserve meeting derail the current USD rally? Traders are expecting a cut in the fund’s rate from 2.50% to 2.25%, this will the first cut since 2008’s GFC. Expectations about a cut have been around for a while now and this cut will be viewed as priced in by the market. Traders will really be watching what Federal Reserve Chairmen Powell has to say and if there’s any direct messages about future cuts. 

“The Fed will likely try and not dash the prospect of a future rate cut held by the markets. But at the same time Chairman (Jerome) Powell is certainly not in a position to promise an upcoming cut, so he is expected to keep his wording as vague as possible,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.“Any vague policy references would provide the dollar with an extra lift as it would further temper excessive easing hopes.”

This is what USD traders will be looking closely at, vagueness in the message with a priced-in rate cut could see buyers lift USD tonight. But if the message points to anything suggesting further action could be needed this might worry USD holders and we could see a decrease in the USD. Normally priced in rate cuts have minimal impact on a currency as the market is expecting the outcome. 

CME’s FedWatch Tool shows 78% of traders pricing in a 25 bp cut. But the remaining 22% still see a deeper 50 bp easing as a possibility.

The USD has had a solid July opening at 96.25, price has been in a decent uptrend most of the month. Currently, the DX sits at 98.02. Technically the uptrend has returned to a strong weekly resistance point seen at the 98.20 level. This level is significant to both sides. Buyers have not closed above this point since May 2017. A break could set up a new extension for the current trend. If sellers hold this resistance it could suggest a new move to test the range low at the 96.10 area and restart pressure on the current uptrend. 

With all key data and news releases please trade with care if you plan to trade the event itself, or trade through it. These market events can cause unexpected volatile moves. Risk managment is a traders best freind! 

Good trading from EightCap

Sources – CNBC – BarCharts – All times AEST

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